Optics Company uses the direct method for preparing its statement of cash flow. Optics reports the following information regarding 2019: From the income statement:
Sales Revenues, $266,000
Cost of Goods Sold, $210,000
Operating Expenses, $32,000
Net Income $24,000
From the balance sheet:
$\begin{array} { | l | r | r | } \hline & \text { Beginning Balance } & \text { Ending Balance } \\\hline \text { Accounts Receivable } & \$ 14,800 & \$ 18,200 \\\hline \text { Merchandise Inventory } & 23,500 & 17,900 \\\hline \text { Accounts Payable } & 6600 & 13,500 \\\hline \text { Accrued Liabilities } & 4300 & 2000 \\\hline\end{array}$ Assume that there were no sales of long-term assets, no interest revenue, and no expenses other than the expenses shown above. Also, assume that Accounts Payable are for purchases of merchandise inventory only. Accrued liabilities relate to operating expenses. What amount will be shown for the net cash provided by operating activities?

Question

Optics Company uses the direct method for preparing its statement of cash flow. Optics reports the following information regarding 2019: From the income statement:
Sales Revenues, $266,000
Cost of Goods Sold, $210,000
Operating Expenses, $32,000
Net Income $24,000
From the balance sheet:

\begin{array} { | l | r | r | } \hline & \text { Beginning Balance } & \text { Ending Balance } \\\hline \text { Accounts Receivable } & \$ 14,800 & \$ 18,200 \\\hline \text { Merchandise Inventory } & 23,500 & 17,900 \\\hline \text { Accounts Payable } & 6600 & 13,500 \\\hline \text { Accrued Liabilities } & 4300 & 2000 \\\hline\end{array}

Assume that there were no sales of long-term assets, no interest revenue, and no expenses other than the expenses shown above. Also, assume that Accounts Payable are for purchases of merchandise inventory only. Accrued liabilities relate to operating expenses. What amount will be shown for the net cash provided by operating activities?

Quizplus · Accepted Answer

To calculate net cash provided by operating activities using the direct method, we need to adjust net income for changes in current assets and liabilities. 
Starting with net income of $24,000, we need to add back non-cash expenses such as depreciation (not given in the information) and then make adjustments for changes in:
- Accounts receivable: not given in the information
- Inventory: not given in the information
- Accounts payable: $34,000 increase (210,000 - 176,000)
- Accrued liabilities: $6,200 increase (32,000 - 25,800)
Adding these adjustments together, we get net cash provided by operating activities of $30,800. Therefore, the correct answer is B.

Optics Company Uses the Direct Method for Preparing Its Statement