Question

During 2020 the DLD Company had a net income of $85,000. In addition, selected accounts 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

To calculate the cash provided by operating activities for DLD Company, adjustments to net income should be made for changes in working capital and non-cash expenses. The correct calculation leads to an amount of $84,500, which is option a.

Step-by-step explanation:

The question is focused on determining the amount of cash provided by operating activities for the DLD Company during 2020. To calculate the cash provided by operating activities, one must adjust the net income by changes in operating accounts. Here are the adjustments based on the provided account changes:

• Accounts Receivable increase: cash outflow of $3,000 (as more sales may be on credit, reducing cash)
• Accounts Payable increase: cash inflow of $1,000 (because less cash is spent on paying suppliers)
• Buildings decrease: not used in operating activities calculation
• Depreciation Expense increase: cash inflow of $1,500 (non-cash expense that reduces net income)
• Bonds Payable increase: not used in operating activities calculation (financing activity)

The calculation for the cash provided by operating activities is therefore:

Net Income + Increase in Accounts Payable + Increase in Depreciation Expense - Increase in Accounts Receivable = $85,000 + $1,000 + $1,500 - $3,000 = $84,500.

Therefore, the correct option for the amount of cash provided by operating activities is option a. $84,500.