Hey friends! can someone help in understanding this case related to cash flow indirect method… why is A/P not consider in the cash operating flow?
Karr, Inc. reported net income of $300,000 for 20×4. 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 20×4, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.
In December 20×4, 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 20×4 Statement of Cash Flows, net cash provided by operating activities should be:
$340,000
$347,000
$352,000
$357,000
You Answered Correctly!
Only an indirect calculation is possible from the data. The reconciliation of net income and net cash flow from operating activities shows the calculation.
Net income $300,000
Plus depreciation expense 52,000
Less gain on sale of equipment (5,000)
Equals net cash provided by operations $347,000
.