C is corrent. Based only on the items given, net cash provided by operating activities is $75,700, as computed below.| Net income | $75,000 | | Increase in AR ($14,500 – $11,500) | (3,000) | | Increase in Allow. for D.A. ($500 – $400) | 100 | | Decrease in prepaid rent ($6,200 – $4,100) | 2,100 | | Increase in AP ($11,200 – $9,700) | 1,500 | | Cash provided by operating activities | $75,700 |
The increase in AR is deducted from net income because it indicates that cash collected is less than sales revenue. The increase in the allowance account is added to net income because it reflects an expense (bad debt expense) which was not a cash payment. The decrease in prepaid rent is added because it too reflects an expense (rent expense) which was not a cash payment (it was an allocation of previously recorded prepaid rent). Finally, the increase in AP is added because it also represents an expense (cost of goods sold) which was not yet paid.A is incorrect. Based only on the items given, net cash provided by operating activities is $75,700, as computed below.| Net income | $75,000 | | Increase in AR ($14,500 – $11,500) | (3,000) | | Increase in Allow. for D.A. ($500 – $400) | 100 | | Decrease in prepaid rent ($6,200 – $4,100) | 2,100 | | Increase in AP ($11,200 – $9,700) | 1,500 | | Cash provided by operating activities | $75,700 |
The increase in AR is deducted from net income because it indicates that cash collected is less than sales revenue. The increase in the allowance account is added to net income because it reflects an expense (bad debt expense) which was not a cash payment. The decrease in prepaid rent is added because it too reflects an expense (rent expense) which was not a cash payment (it was an allocation of previously recorded prepaid rent). Finally, the increase in AP is added because it also represents an expense (cost of goods sold) which was not yet paid.B is incorrect. Based only on the items given, net cash provided by operating activities is $75,700, as computed below.| Net income | $75,000 | | Increase in AR ($14,500 – $11,500) | (3,000) | | Increase in Allow. for D.A. ($500 – $400) | 100 | | Decrease in prepaid rent ($6,200 – $4,100) | 2,100 | | Increase in AP ($11,200 – $9,700) | 1,500 | | Cash provided by operating activities | $75,700 |
The increase in AR is deducted from net income because it indicates that cash collected is less than sales revenue. The increase in the allowance account is added to net income because it reflects an expense (bad debt expense) which was not a cash payment. The decrease in prepaid rent is added because it too reflects an expense (rent expense) which was not a cash payment (it was an allocation of previously recorded prepaid rent). Finally, the increase in AP is added because it also represents an expense (cost of goods sold) which was not yet paid.D is incorrect. Based only on the items given, net cash provided by operating activities is $75,700, as computed below.| Net income | $75,000 | | Increase in AR ($14,500 – $11,500) | (3,000) | | Increase in Allow. for D.A. ($500 – $400) | 100 | | Decrease in prepaid rent ($6,200 – $4,100) | 2,100 | | Increase in AP ($11,200 – $9,700) | 1,500 | | Cash provided by operating activities | $75,700 |
The increase in AR is deducted from net income because it indicates that cash collected is less than sales revenue. The increase in the allowance account is added to net income because it reflects an expense (bad debt expense) which was not a cash payment. The decrease in prepaid rent is added because it too reflects an expense (rent expense) which was not a cash payment (it was an allocation of previously recorded prepaid rent). Finally, the increase in AP is added because it also represents an expense (cost of goods sold) which was not yet paid. |
