Asked by Lopez Anibal on Apr 26, 2024
Verified
Darwin Company,a manufacturer,has provided the following information pertaining to its recent year of operation: • Net income,$200,000
• Accounts receivable increased $18,000
• Prepaid insurance increased $7,000
• Depreciation expense was $25,000
• Loss on sale of a building was $22,000
• Wages payable increased $14,000
• Unearned revenue decreased $21,000
Using the indirect method,how much was Darwin's net cash provided by operating activities?
A) $227,000.
B) $215,000.
C) $171,000.
D) $257,000.
Indirect Method
The indirect method is a way of calculating cash flows from operating activities in a cash flow statement by starting with net income and adjusting for changes in balance sheet items.
Wages Payable
A liability account representing the amount of wages owed to employees for work done that has not yet been paid.
- Identify the changes needed to evolve net income into cash flow from operating activities using the indirect method.
- Analyze the significance of working capital account variations on cash flows derived from activities related to operations.
Verified Answer
VS
Vanessa SalazarApr 28, 2024
Final Answer :
B
Explanation :
The net cash provided by operating activities can be calculated by adjusting net income for changes in operating assets and liabilities as follows:
Net Income: $200,000
Add: Depreciation Expense: $25,000
Add: Loss on Sale of Building: $22,000
Increase in Accounts Receivable: ($18,000)
Increase in Prepaid Insurance: ($7,000)
Increase in Wages Payable: $14,000
Decrease in Unearned Revenue: ($21,000)
Net Cash Provided by Operating Activities: $215,000
Net Income: $200,000
Add: Depreciation Expense: $25,000
Add: Loss on Sale of Building: $22,000
Increase in Accounts Receivable: ($18,000)
Increase in Prepaid Insurance: ($7,000)
Increase in Wages Payable: $14,000
Decrease in Unearned Revenue: ($21,000)
Net Cash Provided by Operating Activities: $215,000
Learning Objectives
- Identify the changes needed to evolve net income into cash flow from operating activities using the indirect method.
- Analyze the significance of working capital account variations on cash flows derived from activities related to operations.
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