Question

The Hamada Company sales for 2016 totaled $150,000 and purchases totaled $95,000. Selected January 1, 2016, balances were: accounts receivable, $18,000; inventory, $14,000; and accounts payable, $12,000. December 31, 2016, balances were: accounts receivable, $16,000; inventory, $15,000; and accounts payable, $13,000. Net cash flows from these activities were:
A. $45,000.
B. $55,000.
C. $58,000.
D. $74,000.

Answer 1

Answer:

Option (C) is correct.

Explanation:

Decrease in accounts receivable:

= ($18,000 - $16,000)

= $2,000

Increase in accounts payable:

= $13,000 - $12,000

= $1,000

Cash collections:

= Sales + Decrease in accounts receivable

= $150,000 + $2,000

= $152,000

Cash disbursements:

= Purchase - Increase in accounts payable

= $95,000 - $1,000

= $94,000

Net cash flows from these activities:

= Cash collections - Cash disbursements

= $152,000 - $94,000

= $58,000