Question

Chow Company earned $2,300 of cash revenue, paid $1,400 for cash expenses, and paid a $400 cash dividend to its owners. Which of the following statements is true?

a) Net income is $1,900.
b) Net cash flow from operating activities is $1,900.
c) Retained earnings increase by $1,500.
d) Cash at the beginning and end of the period is $2,300.

Answer 1

The correct statement is b) Net cash flow from operating activities is $1,900.

Step-by-step explanation:

In this scenario, we are given that Chow Company earned $2,300 of cash revenue, paid $1,400 for cash expenses, and paid a $400 cash dividend to its owners. We need to determine which statement is true.

The correct statement is b) Net cash flow from operating activities is $1,900.

Net cash flow from operating activities is calculated by subtracting cash expenses from cash revenue. In this case, the net cash flow from operating activities is $2,300 - $1,400 = $900.

However, since the company also paid a cash dividend of $400, we need to subtract that from the net cash flow from operating activities to find the final net cash flow. Therefore, the net cash flow from operating activities is $900 - $400 = $500.