Question

Suppose that Forever 21 Company recorded the following cash transactions for the year: Paid $134500 for salaries. Paid $58200 to purchase office equipment. Paid $14600 for utilities. Paid $6400 in dividends. Collected $280000 from customers. What was Forever 21's net cash provided by operating activities?

Answer 1

Forever 21's net cash provided by operating activities is $130,900, calculated by subtracting cash paid for salaries and utilities from cash collected from customers. For the self-check question, the firm's accounting profit is $50,000, found by subtracting explicit costs from total revenues.

Step-by-step explanation:

The student has asked about calculating the net cash provided by operating activities for Forever 21 Company. To calculate net cash provided by operating activities, we consider cash transactions related to the company's primary business activities, like cash collected from customers and cash paid for salaries and utilities, excluding investment or financing activities such as purchasing office equipment or paying dividends.

The calculation is as follows:

• Cash collected from customers: $280,000
• Less: Cash paid for salaries: -$134,500
• Less: Cash paid for utilities: -$14,600

Net cash provided by operating activities = $280,000 - $134,500 - $14,600 = $130,900.

For the self-check question: To calculate a firm's accounting profit, we subtract the explicit costs from the total revenues. In this case, it will be $1,000,000 - ($600,000 + $150,000 + $200,000) = $50,000.