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During 2020, Acadia, Incorporated, earned net income of $650,000. The firm increased its accounts receivable during the year by $200,000. The book value of its assets declined by an amount equal to the year’s depreciation charge, or $85,000, and the market value of its assets increased by $36,000. Based only on this information, how much cash did Acadia generate during the year?

User Loek
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Final answer:

To calculate the cash generated by Acadia during the year, you need to consider their net income, changes in accounts receivable, change in book value of assets, and market value of assets.

Step-by-step explanation:

To calculate the cash generated by Acadia, we need to consider their net income, changes in accounts receivable, change in book value of assets, and market value of assets. Cash generated can be calculated as Net Income + Increase in Accounts Receivable - Depreciation - Increase in Book Value of Assets + Increase in Market Value of Assets.

Using the given information, the cash generated by Acadia during the year would be:
$650,000 + $200,000 - $85,000 - $36,000 = $729,000.

User Lucas Weyne
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Final answer:

Acadia, Incorporated generated $535,000 in cash during 2020, calculated by adjusting the net income for the increase in accounts receivable and adding back depreciation.

Step-by-step explanation:

To calculate how much cash Acadia, Incorporated, generated during the year, we need to adjust the net income for changes in assets and depreciation. Acadia earned a net income of $650,000. However, the company also increased its accounts receivable by $200,000, which is an asset increase but doesn't represent cash being received. We subtract this increase from the net income because it's income that has been earned but not yet received in cash. On the contrary, depreciation is a non-cash expense; even though the book value of assets declined by the depreciation charge of $85,000, this does not affect the actual cash flow, so we add this amount back to the net income. The market value change of assets is not typically considered in the cash flow calculation because it represents an unrealized gain or loss. Hence, the cash generated during the year is the net income, minus the increase in accounts receivable, plus the depreciation charge, which is $650,000 - $200,000 + $85,000 = $535,000.

User Florins
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