Swede Hotel had net income for 2020 of $130,600. Included in net income was depreciation of $2,100, a gain on sale of land of $7,000, loss on sale of equipment of $9,200 and income taxes of $30,700. Using the information given, calculate the net cash provided (used) by operating activities using the indirect method. Assume that the balances of current assets (except cash) and current liabilities remain the same as last year.

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Answer 1

The net cash provided (used) by operating activities using the indirect method is $105,200.

To calculate the net cash provided (used) by operating activities using the indirect method, we need to make adjustments to the net income by adding back non-cash expenses and gains and subtracting non-cash income and losses.

First, we add back the depreciation expense since it is a non-cash expense:

Net income + Depreciation = $130,600 + $2,100 = $132,700

Next, we subtract the gain on the sale of land and add the loss on the sale of equipment since they are non-cash gains and losses respectively:

Net income + Depreciation - Gain on sale of land + Loss on sale of equipment

= $132,700 - $7,000 + $9,200 = $135,900

After adjusting for these items, we have the net income figure that reflects the cash inflows and outflows from operating activities. However, we need to further adjust for income taxes.

To calculate the net cash provided (used) by operating activities, we need to subtract the income taxes:

Net cash provided (used) by operating activities = Net income + Depreciation - Gain on sale of land + Loss on sale of equipment - Income taxes

= $135,900 - $30,700 = $105,200

Therefore, the net cash provided (used) by operating activities using the indirect method is $105,200. This represents the net cash generated or utilized from the day-to-day operations of Swede Hotel during 2020, after considering non-cash items and income taxes.

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