Question

1. Shu Zhang One Company uses the direct method of presenting cash flow from operating activities in the statement of cash flows. Based on the following information, what is the cash provided or used by operating activities?

Net income                                                     $75,000

Decrease in Accounts Receivable                   10,000

Increase in Inventory                                          6,000

Decrease in Accounts Payable                            4,000

Increase in Income Tax Payable                         2,000

Depreciation Expense                                         7,500

1. $69,000
2. $75,000
3. $80,500
4. $84,500

please explain

Answer 1

Ans.	Option d   $84,500
	Particulars		Amount	Amount
	Cash flow from operating activities:
	Net income			$75,000
	Add: Non cash/operating expenses:
	Depreciation expense		$7,500
	Total non cash expenses			$7,500
	Operating profit before working capital changes			$82,500
	Changes in current assets and liabilities
	Add: Decrease in accounts receivables		$10,000
	Less: Increase in inventory		-$6,000
	Less: Decrease in accounts payable		-$4,000
	Add: Increase in Income tax payable		$2,000	$2,000
	Net cash provided by operating activities			$84,500
	*Decrease in current assets and Increase in current liabilities are added to Net Income.
	*Increase in current assets and Decrease in current liabilities are subtracted from Net Income.