Question

Peterson Enterprises reports the following information: Net income $5,000,000 Depreciation expense 680,000 Loss on the sale of investments 154,000 Increase in accounts receivable 320,000 Peterson should report cash provided by operating activities of:_______.a. $5,000,000.b. $3,846,000. c. $5,514,000.d. $6,154,000.

Answer 1

Answer:

The answer is Option C.

Explanation:

The cash flows statement (extract) is provided below:

Peterson Enterprises

Statement of cash flows

Net income                                                         $5,000,000

Add: Depreciation expense                                    680,000

        Loss on the sale of investments                     154,000

Less: Increase in accounts receivable                  (320,000)

Net cash flows from operating activities         $5,514,000

• The depreciation expense and loss on sale of investments are non-cash items, hence the need to add them back to the net income.
• The increase in accounts receivable signifies an outflow of cash, hence the need to back it out from the net income.