Question

1-3-2

Sheffield Corp.'s net income for the current year was $541000. Depreciation recorded on plant assets was $81000. Accounts receivable and inventories increased by $42000 and $17000, respectively. Supplies and accounts payable decreased by $2000 and $34000, respectively. A $500,000 convertible bond was retired through the issuance of common stock. How much cash was provided by operating activities?

$531000.

$493000.

$713000.

$510000.

Answer 1

Option (a) is correct

In calculating the cash flows from operating activities from indirect method, we will start with the net income. We will add back the non cash item of depreciation in it. Then we will adjust the amount for increase or decrease in cash due to increase or decrease in current assets or current liabilities.Like, an increase in current assets will reduce cash, so we will deduct it and a decrease in current assets will increase cash, so we will add it. Similarly, an increase in current liabilities will increase cash, so it will be added and a decrease in current liabilities will reduce cash, so it will be deducted.

Cash flow statement (Partial):

Description	Amount
Cash from operating activities
Net income	$541000
Adjustments to reconcile net income to net cash from operating activities
Add: Depreciation	$81000
Less: Increase in accounts receiuvables	- $42000
Less: Increase in inventories	- $17000
Add: Decrease in supplies	$2000
Less: Decrease in accounts payable	- $34000
Net cash provided by operating activities	$531000