[Vanessachy]

Karr, Inc., reported net income of $300,000 for 20X1. Changes occurred in several balance sheet accounts as follows:

Equipment $25,000 increase

Accumulated depreciation 40,000 increase

Note payable 30,000 increase

Additional Information

During 20X1, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.

In December 20X1, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.

Depreciation expense for the year was $52,000.

In Karr’s 20X1 statement of cash flows, net cash provided by operating activities should be:

A. $340,000.

B. $347,000.

C. $352,000.

D. $357,000.

All items that are included in net income that do not affect net cash provided from, or used for, operating activities such as depreciation of property, plant, and equipment and amortization of finite-life intangible assets. This includes all items whose cash effects are related to investing or financing cash flows, such as gains or losses on sales of property, plant, and equipment and discontinued operations (which relate to investing activities), and gains or losses on extinguishment of debt (which relate to financing activities). (FASB ASC 230-10-45-28)

I don’t understand why not adding back depr? I have never seen a question that doesn’t included depr

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Lidis]

Net income 300,000
Depreciation Expense 52,000
Gain on sale of equip <5,000>
Net cash provided by operating activities 347,000

[ohiostategirlcpa]

You do have to add back the depreciation expense to net income because it is not a cash outlay.

Cash flow from operations is equal to: All items that are included in net income that do not affect net cash provided from, or used for, operating activities such as depreciation of property, plant, and equipment and amortization of finite-life intangible assets.

So you have to filter out some items which have already been included in NI.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[Anonymous]

I actually have a question regarding the net cash used to investing activities instead. I understand how to get the answer of, 18,000 – 20,000 = 2,000

J/E:
Sale:
(DR) Cash 18,000 (plug)
(DR) Accum. Dep 12,000
(CR) Equip. 25,000
(CR) Gain 5,000
Purchase:
(DR) Equip. 50,000
(CR) Cash 20,000
(CR) N/P 30,000

I get that we should only take the cash amounts into consideration (18,000 – 20,000). However, my initial approach to this problem was 25,000 – 40,000 + 5,000 = 10,000 for investing activities. I used the same inc./dec. approach for investing activities as I do for operating activities. I'm just wondering if this approach is wrong because it's only operating activities where we use the inc./dec. amounts?

[Author]

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