Question

Kresley Co. has provided the following 20X5 current account balances for the preparation of the annual Statement of Cash Flows: January 1 December 31 Accounts receivable $11,500 $14,500 Allowance for uncollectible accounts 400 500 Prepaid rent expense 6,200 4,100 Accounts payable 9,700 11,200 Kresley's 20X5 net income is $75,000. Net cash provided by operating activities in the Statement of Cash Flows should be

Answer 1

The net cash provided by operating activities for Kresley Co. is $75,700, calculated by adjusting the net income with changes in accounts receivable, allowance for uncollectible accounts, prepaid rent expense, and accounts payable.

Step-by-step explanation:

To calculate the net cash provided by operating activities for Kresley Co., we need to adjust the net income by the changes in current accounts associated with operations. This is part of the indirect method of preparing the Statement of Cash Flows.

• Accounts Receivable increased by $3,000 ($14,500 - $11,500), which means that more sales were on credit than cash collected; this is a deduction from net income.
• Allowance for Uncollectible Accounts increased by $100 ($500 - $400), signaling an increase in credit loss expectation; this is an addition back to net income as it was already expensed.
• Prepaid Rent Expense decreased by $2,100 ($6,200 - $4,100), meaning less cash is tied up in prepaid expenses; this is an addition to net income.
• Accounts Payable increased by $1,500 ($11,200 - $9,700), reflecting more unpaid invoices at year-end; this is also an addition to net income.

Adding and subtracting these adjustments from the net income of $75,000, we get the net cash provided by operating activities:

• Net Income: $75,000
• Add: Increase in Allowance for Uncollectible Accounts: $100
• Add: Decrease in Prepaid Rent Expense: $2,100
• Add: Increase in Accounts Payable: $1,500
• Subtract: Increase in Accounts Receivable: ($3,000)

Total adjustments: $100 + $2,100 + $1,500 - $3,000 = $700

Net Cash Provided by Operating Activities: $75,000 + $700 = $75,700

Answer 2

Net cash provided by operating activities in the Statement of Cash Flows should be $75,700.

Step-by-step explanation:

Prepare the Cash Flow from Operating Activities Section of the Cash Flow Statement using the Indirect method as follows :

Cash Flow from Operating Activities

Net Income for the year $75,000

Adjustment for non-cash items :

Increase in Allowance for uncollectible accounts $100

Adjustment for changes in working capital :

Increase in Accounts receivable ($3,000)

Decrease in Prepaid rent expense $2,100

Increase in Accounts payable $1,500

Net Cash from Operating Activities $75,700