Question

During 2017 the DLD Company had a net income of $85,000. In addition, selectedaccounts showed the following changes: Accounts Receivable $3,000 increase Accounts Payable 1,000 increase Buildings 4,000 decrease Depreciation Expense 1,500 increase Bonds Payable 8,000 increase What was the amount of cash provided by operating activities
A) $84,500
B) $85,000
C) $86,500
D) $94,500

Answer 1

Answer:

A) $84,500

Explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.  

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

Hence, amount of cash provided by operating activities

= -$3,000 + $1,000 + $1,500 + $85,000

= $84,500

The increase in asset other than cash is an outflow, increase in liability is an inflow of cash. Depreciation is a non-cash item added back while increase in building and bond payable are investing and financing activities respectively.