In its second year of business, a company has a net income of $120,000. The following table provides year-end account information. Account Year 1 Year 2 Accounts payable $5,000 $4,000 Accumulated depreciation $65,000 $85,000 Prepaid expenses $20,000 $15,000 Fixed assets $250,000 $255,000 The company uses the indirect method to prepare a statement of cash flows for Year 2. How much should the company report as net cash provided by operating activities

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Business

Rogelio Ware

31 March, 22:18

In its second year of business, a company has a net income of $120,000. The following table provides year-end account information. Account Year 1 Year 2 Accounts payable $5,000 $4,000 Accumulated depreciation $65,000 $85,000 Prepaid expenses $20,000 $15,000 Fixed assets $250,000 $255,000 The company uses the indirect method to prepare a statement of cash flows for Year 2. How much should the company report as net cash provided by operating activities

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Wilson · Answer 1

Net cash provided by operating activities is 149.000

Explanation:

The indirect method involves the adjustment of net income with changes in balance sheet accounts to arrive at the amount of cash generated by operating activities.

First we have to see if each account increase o decrease by resting value of year 1 to the year 2

Decrease / Increase = year 2 - year 1

For example Accounts payable

year 1 $5,000

year 2 $4,000

Accounts payable decrease 1000 ($4,000-$5,000)

Once we have this information we make the adjustments.

It depends on the account if it is added or subtracted to net income. Below you will find the added account with a plus (+) and the subtracted ones with a minus (-)

Notice the amounts of any decreases are in parentheses.

Net income 120.000

Adjustment to reconcile the net income to cash

- Decrease in accounts payable (1.000)

+ Depreciation expense 20000

+ Decrease Prepaid expenses 5.000

+ Decrease in Fixed assets 32.400

Net cash 149.000