Kingbird Beverage Company reported the following items in the most recent year. Net income...

Question:

Kingbird Beverage Company reported the following items in the most recent year.

Net income $40,300

Dividends paid 6,520

Increase in accounts receivable 10,330

Increase in accounts payable 7,270

Purchase of equipment (capital expenditure) 8,360

Depreciation expense 4,270

Issue of notes payable 23,200

Compute net cash provided by operating activities, the net change in cash during the year.

Cash Flow from Operating Activities

The cash flow from the operating activities is the flow of cash which occurs from the operation of the business and not due to the investing and the financing activities. The operating activities basically include sales, purchase, routine expenses, taxes, etc. All the non-cash operating expenses like depreciation are ignored in the computation of the operating cash flow. However, the tax shield on depreciation is considered because it decreases the net tax payment.

Answer and Explanation:


The net cash provided by operating activities is $45,510

The net change in cash during the year is $49,830

Explanation

Step 1

Computation of net cash provided by operating activities

Amount
Net Income $40,300
Less:Increase in accounts receivable 10,330
Add: Increase in accounts payable 7,270
Add: Depreciation expense 4,270
Net cash provided by operating activities $41,510


Step 2

Computation of net cash used by investing activities

Amount
Purchase of equipment (capital expenditure) ($8,360)
Net cash used by investing activities ($8,360)


Step 3

Computation of net cash provided by financing activities

Amount
Issue of notes payable $23,200
Less: Dividends paid 6,520
Net cash provided by financing activities $16,680


Step 4

Computation of net change in cash during the year

Amount
Net cash provided by operating activities $41,510
Net cash used by investing activities ($8,360)
Net cash provided by financing activities $16,680
Net change in cash during the year $49,830

Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
10K

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