ExpertHard1 markMultiple Choice
CPA · Question 4 · Area 1: Financial Reporting
Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended December 31, Year 1, the following data is available:<br/>- Net Income: $500,000<br/>- Gain on sale of equipment: $20,000<br/>- Purchase of treasury stock: $50,000<br/>- Amortization of bond discount: $5,000<br/>- Increase in net accounts receivable: $30,000<br/>- Decrease in prepaid expenses: $10,000<br/>- Payment of cash dividends: $40,000<br/><br/>What is the net cash provided by operating activities?
Orion Corp. reports under US GAAP. In preparing its statement of cash flows for the year ended December 31, Year 1, the following data is available:<br/>- Net Income: $500,000<br/>- Gain on sale of equipment: $20,000<br/>- Purchase of treasury stock: $50,000<br/>- Amortization of bond discount: $5,000<br/>- Increase in net accounts receivable: $30,000<br/>- Decrease in prepaid expenses: $10,000<br/>- Payment of cash dividends: $40,000<br/><br/>What is the net cash provided by operating activities?
Answer options:
A.
$475,000
B.
$455,000
C.
$465,000
D.
$425,000
How to approach this question
Start with Net Income. Reverse non-cash items (subtract gains, add losses/depreciation/amortization). Adjust for changes in working capital (Asset up = Cash down; Liab up = Cash up). Ignore Financing/Investing items.
Full Answer
C.$465,000✓ Correct
Operating Cash Flow = Net Income ($500k) - Gain on Sale ($20k) + Bond Discount Amort ($5k) - Increase in A/R ($30k) + Decrease in Prepaid ($10k) = $465,000. Note: Treasury stock and dividends are Financing activities.
Common mistakes
Including dividends paid in operating (it's financing); adding the gain instead of subtracting.
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