Asked by zereniah mungate on Jun 04, 2024
Verified
The data given below are from the accounting records of the Kuhn Corporation: Based on this information, the net cash provided by (used in) operating activities using the indirect method would be:
A) $55,000
B) $58,000
C) $50,000
D) $60,000
Indirect Method
A technique used in cash flow statements where net income is adjusted for changes in balance sheet accounts to calculate cash flow from operating activities.
Operating Activities
Actions related to the day-to-day functions of a business that directly affect its cash inflows and outflows, such as sales, purchase of inventory, and payment of salaries.
- Estimate the net cash proceeds from (or outlays for) operating activities.
Verified Answer
Starting with net income of $80,000, we need to add back depreciation expense of $20,000 (a non-cash expense) and subtract the increase in accounts receivable of $5,000 and the increase in accounts payable of $45,000 (changes in working capital accounts).
Net cash provided by operating activities = Net income + Depreciation expense - Increase in accounts receivable - Increase in accounts payable
= $80,000 + $20,000 - $5,000 - $45,000
= $50,000
Therefore, the correct answer is C) $50,000.
Learning Objectives
- Estimate the net cash proceeds from (or outlays for) operating activities.
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