A company reports net income of $9,700 for the year. During the year, the company reports an $1,140 loss from retirement of notes and a gain of $1,710 from the sale of equipment. Also, depreciation expense is $3,480. The only change in current assets and current liabilities was a $570 increase in inventory.Compute net cash provided by operating activities using the indirect method.Note: Amounts to be deducted should be indicated with a minus sign.
Question
A company reports net income of 1,140 loss from retirement of notes and a gain of 3,480. The only change in current assets and current liabilities was a $570 increase in inventory.Compute net cash provided by operating activities using the indirect method.Note: Amounts to be deducted should be indicated with a minus sign.
Solution
To compute the net cash provided by operating activities using the indirect method, follow these steps:
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Start with the net income: $9,700
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Add back non-cash expenses (depreciation): $3,480
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Adjust for gains and losses from investing activities. Subtract gains and add losses. In this case, subtract the gain from the sale of equipment: -1,140
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Adjust for changes in operating assets and liabilities. In this case, inventory increased, which is a use of cash, so subtract the increase in inventory: -$570
Here's the calculation:
$9,700 (Net Income)
- $3,480 (Depreciation)
- $1,710 (Gain on Sale of Equipment)
- $1,140 (Loss on Retirement of Notes)
- 12,040
So, the net cash provided by operating activities is $12,040.
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