Skysong, Inc.'s net income for the current year was $394000. Depreciation was $51000. Accounts receivable and inventories decreased by $16000 and $26000, respectively. Prepaid expenses and salaries payable increased, respectively, by $2000 and $13000. Equipment was sold at a gain of $7400. How much cash was provided by operating activities

Skysong, Inc.

Cash provided by operating activities =

$502,000

Explanation:

a) Data and Calculations:

Net income =       $394,000

Depreciation             51,000

operating cash                         $445,000

Net working capital:

Accounts receivable $16,000

Inventory                    26,000

Prepaid expenses       2,000

Salaries payable        13,000       57,000

Net cash from operating       $502,000    

b) The operating activities section of Skysong's cash flows statement depicts the ability of the company to generate cash from its main business activities.  The net cash from operating activities is determined by adjusting its net income with non-cash flows (e.g. depreciation expenses) and working capital changes.  A decrease in the current assets represents a source of operating cash, just as an increase in the current liabilities also represents a source of operating cash.