Question

Paper Co. had net income of $70,000 during the year. The dividend payment was $10,000. The following information is available: Mortgage repayment $20,000 Available-for-sale debt securities purchased 10,000 increase Bonds payable–issued 50,000 increase Inventory 40,000 increase Accounts payable 30,000 decrease What amount should Paper report as net cash provided by operating activities in its Statement of Cash Flows for the year?

Answer 1

Answer:

net cash from operating activities = $0

Explanation:

given data

net income = $70,000

dividend payment = $10,000

Mortgage repayment = $20,000

Available-for-sale securities purchased = 10,000 increase

Bonds payable  = 50,000 increase

Inventory = 40,000 increase

Accounts payable = 30,000 decrease

solution

we get here net cash from operating activities that is express as

net cash from operating activities = net income - inventory increase - accounts payable decrease   .......................1

put here value

net cash from operating activities = $70,000 - $40,000 - $30,000

net cash from operating activities = $0

because

• Dividend payments, repayment (mortgage) and debt issuance (bond) financing activities. The purchase of debt or equity instruments (securities available for sale) is an investment activity.
• Operating Cash Flow Investing cash flow excludes this financing. Further, these factors do not affect net income. Consequently, net cash provided by operating activities can be determined by adjusting net income payable in inventory and accounts.
• To differentiate between the cost of goods sold (deducted from income) and cash payments to suppliers, a two-step adjustment is required. The change in inventory is the difference between the prices of goods sold and purchased.
• The difference between the amount payable to buyers and suppliers is the change in accounts payable. Accordingly, an increase in inventories and a reduction in accounts payable is required to change the cost of goods sold to cash paid to suppliers.