Question

During 2019 the Barker Company had a net income of $75,000. Below is information taken from Barker’s last two balance sheets: 2018 2019 Accounts Receivable (all current) 51,000 54,000 Long-term Accounts Receivable 10,000 0 Accounts Payable (all current) 3,000 4,000 Land 100,000 96,000 Equipment 50,000 50,000 Accumulated Depreciation, Equipment 3,500 5,000 Common Stock 4,200 12,200 Additional information for 2019: 1. Long-term notes receivable related to a loan Barker made to another business entity in the amount of $10,000 were paid back in cash before maturity. 2. Barker sold a piece of land at a $500 gain. No other land was purchased during the period. 3. Dividends in the amount of $2,000 were paid during the year. What was the amount of cash provided by operating activities for 2019?

Answer 1

Answer:

cash provided by operating activities  84,000

Explanation:

net income  75,000

Adjustment (A)

gain on land   (500)

depreciation   1,500

Adjusted net income                  76,000

Change in working capital

↑account receivable   (3,000) (B)

↓long term AR             10,000 (C)

↑Account payable         1,000 (D)

Net changes                               8,000

cash provided by operating activities  84,000

Notes:

(A)

The net income may have non-monetary term, we need to remove those to get and adjusted net income on a cash basis

the gain on land is not a monetary term. We will record the proceeds in cash for the sale under investment activities, not operating as the business is not selling land every year.

depreciation is an accounting metric, is not an actual expense, it doesn't involve cash.

(B)

the increasein the Ar means more sales were not collected therefore, less cash collected.

(C)

the decrease in the long term AR  represent the collection, so it increases the cash

(D)

the increase in account payable represent the delay of payment, so company has more cash available.