Question

The data given below are from the accounting records of the Kuhn Corporation: Net Income (accrual basis) $ 65,000 Depreciation Expense $ 19,000 Decrease in Accounts Payable $ 3,500 Decrease in Inventory $ 4,000 Increase in Bonds Payable $ 20,000 Sale of Common Stock for cash $ 32,000 Increase in Accounts Receivable $ 6,500 Based on this information, the net cash provided by (used in) operating activities using the indirect method would be:

Answer 1

Answer:

Explanation:

Operating activities : It includes all activities related to the changes in the working capital or changes in the current assets and current liabilities.

The increase in current liabilities increase the cash and decrease in current liabilities decrease the cash, so the adjustment is made accordingly. But it is opposite with the current assets.

The Net cash in operating activities under indirect method is shown below:

= Net income + Depreciation expense - decrease in accounts payable + decrease in inventory - increase in accounts receivable

= $65,000 + $19,000 - $3,500 + $4,000 - $6,500

= $78,000

The other effect like increase in bond payable, sale of common stock for cash is classified under financing activities. Thus, it is not considered in computation part.

Hence, the Net cash in operating activities under indirect method is $78,000