A company had net income of \$240,000. Depreciation expense was \$36,000. During the year, the accounts receivable and Inventory increased \$12,000 and \$25,000, respectively. Accrued expenses and prepaid expenses decreased by \$3,000 and \$14,000, respectively. There was also a gain on the sale of equipment of \$4,000. How much cash was provided by operating activities?

• A. \$246,000
• B. \$260,000
• C. \$263,000
• D. \$292,000

Answer: (A)

Verified step by step guidance

1. Start with the net income of the company, which is \$240,000.
2. Add back the non-cash depreciation expense of \$36,000 to the net income, as it does not affect cash flow.
3. Adjust for changes in working capital: Subtract the increase in accounts receivable (\$12,000) and inventory (\$25,000) since these represent cash outflows.
4. Adjust for changes in liabilities: Add the decrease in accrued expenses (\$3,000) and subtract the decrease in prepaid expenses (\$14,000) as these affect cash flow.
5. Subtract the gain on the sale of equipment (\$4,000) from the net income, as it is a non-operating activity and should not be included in cash from operating activities.