ExpertMedium1 markMultiple Choice
CPA · Question 16 · Area 2: Financial Statement Analysis
A company reports the following for Year 1:<br/>- Net Income: $200,000<br/>- Depreciation: $50,000<br/>- Gain on sale of equipment: $10,000<br/>- Increase in Accounts Receivable: $20,000<br/>- Decrease in Inventory: $15,000<br/>- Decrease in Accounts Payable: $5,000<br/><br/>What is the Net Cash Provided by Operating Activities?
A company reports the following for Year 1:<br/>- Net Income: $200,000<br/>- Depreciation: $50,000<br/>- Gain on sale of equipment: $10,000<br/>- Increase in Accounts Receivable: $20,000<br/>- Decrease in Inventory: $15,000<br/>- Decrease in Accounts Payable: $5,000<br/><br/>What is the Net Cash Provided by Operating Activities?
Answer options:
A.
$220,000
B.
$240,000
C.
$230,000
D.
$250,000
How to approach this question
Start with Net Income. Add non-cash expenses (Depr). Subtract non-cash gains. Subtract increases in Current Assets (uses cash). Add decreases in Current Assets (sources cash). Add increases in Current Liabs. Subtract decreases in Current Liabs.
Full Answer
C.$230,000✓ Correct
C
200 (NI) + 50 (Depr) - 10 (Gain, reclassified to Investing) - 20 (AR use of cash) + 15 (Inv source of cash) - 5 (AP use of cash) = 230.
Common mistakes
Adding the gain; getting the direction of working capital changes wrong.
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