Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income $ 85,900Depreciation expense 12,600Gain on sale of land 8,100Increase in merchandise inventory 2,650Increase in accounts payable 6,750Multiple Choice$14,200.$37,700.$94,500.$13,200.$29,600.
Question
Use the following information and the indirect method to calculate the net cash provided or used by operating activities: Net income 14,200.94,500.29,600.
Solution
To calculate the net cash provided or used by operating activities using the indirect method, follow these steps:
- Start with the net income: $85,900
- Add back the depreciation expense (since it's a non-cash expense that was subtracted when calculating net income): 12,600 = $98,500
- Subtract the gain on sale of land (since it's a non-operating activity that was included in net income): 8,100 = $90,400
- Adjust for changes in operating assets and liabilities. An increase in an asset (like inventory) is a use of cash, so subtract it: 2,650 = $87,750
- An increase in a liability (like accounts payable) is a source of cash, so add it: 6,750 = $94,500
So, the net cash provided by operating activities is $94,500.
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