Question

Baxter Company reported a net loss of $13,000 for the year ended December 31. During the year, accounts receivable decreased by $5,000, merchandise inventory increased by $8,000, accounts payable increased by $10,000, and depreciation expense of $4,000 was recorded. During the year, operating activities
a. used net cash of $8,000
b. provided net cash of $8,000
c. provided net cash of $2,000
d. used net cash of $2,000

Answer 1

Answer:

"D"

Explanation:

Operating activities on the statement of cash flow explains the detail of inflow and outflow of cash in a regular business activity

To arrive at this , an adjustment is made to the net income and the changes in working capital.

The working capital is the liquidity readily available for business operation.

Net loss = ($13,000)

Add back depreciation = $4,000

Change in account receivable = +$5000

Change in inventory = ($8,000)

Change in account payable =  +$10,000

Net cash flow = ($2000)

Used net cash of $2000

Answer 2

Answer:

used net cash of $2000.

Explanation:

Given: Net loss= $13000

           Account receivable decreased by $5,000.

          Accounts payable increased by $10,000.

          Merchandise inventory increased by $8,000.

          Depreciation expense = $4,000.

Now, lets compute the operating activities during the year.

Cash for operating activities= $(Net\income+Depreciation+Account\ payable+Account\ receivable-Inventory)$

⇒ Cash for operating activities= $(-13000+4000+10000+5000-8000) = (-21000+19000)$

∴ Cash for operating activities= -$2000

∴ Used net cash of $2000 for operating activities during the year.