28) You have chosen the indirect method to calculate and report net cash provide

ID: 2391039 • Letter: 2

Question

28) You have chosen the indirect method to calculate and report net cash provided or used by operating activities. Which one of the following is subtracted from net income to arrive at The correct answer? 28) A) Bad debts expense B) Amortization of intangible assets. C) Decrease in income taxes payable. D) Decrease in merchandise inventory E) Depreciation expense. 29) Castro Inc. had a net decrease in cash of $10,000 for the current year as found on the Statement of Cash Flows. Net cash used in investing activities was $52,000 and net cash used in financing activities was $38,000. What amount of cash was provided (used) in operating activities? 29) A) $80,000 provided. B) $(100,000) used. C) $(10,000) used. D) $100,000 provided. E) $(80,000) used. 8 | Page

Explanation / Answer

Solution:

28)

The correct option is C) Decrease in Income Taxes Payable

Indirect method of cash flow statement takes the change in Current Assets and Current Liabilities in determining the Cash Flow from Operating Activities.

Any decrease in Current Liabilities i.e. Income Taxes Payable means the company paid the liability which represents the Cash Outflow, hence subtracted from net income.

29)

Calculation of Cash Provided (Used) in Operating Activities

Cash Provided (Used) in Operating Activities (A)

[(Balancing Figure ($52,000 + 38,000) – (-$10,000)]

($100,000)

Net Cash Used in Investing Activities (B)

$52,000

Net Cash Used in Financing Activities (C )

$38,000

Net Decrease in Cash (A+B+C)

($10,000)

Hence, the correct option is B) $(100,000) Used

30)

Net Cash Provided (Used) in Operating Activities

Net Income

$230,000

Plus: Depreciation Expense (Non Cash Item)

$87,700

Less: Gain on Sale of Equipment (Investing Activities)

($5,000)

Plus: Decrease in Accounts Receivable

$35,500

Plus: Increase in Accounts Payable

$15,750

Less: Decrease in Wages payable

($12,500)

Net Cash Provided in Operating Activities

$351,450

Hence, the correct option is A) $351,450

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