The net income for the year ended December 31, 2015, for Oliva Company was $1,90

Question

The net income for the year ended December 31, 2015, for Oliva Company was $1,900,000. Additional information is as follows:

Based solely on the information given above, what should be the net cash provided by operating activities in the statement of cash flows for the year ended December 31, 2015?

Depreciation on plant assets $600,000 Amortization of leasehold improvements 340,000 Provision for doubtful accounts on short-term receivables 120,000 Provision for doubtful accounts on long-term receivables 100,000 Interest paid on short-term borrowings 80,000 Interest paid on long-term borrowings 60,000

Explanation / Answer

In the current problem, different activities are there which are either non-cash operating activities, non- operating activities and operating activities.

Under the Indirect method of preparing cash flow statements, Net income is taken as starting point and then Non-Cash and Non-operating activities are added. Provisions are non-cash items which are debited to income statement.

Depreciation, Amortization and Interest paid are non operating activities which are debited to Income statement.

The cash flow from operating activities is calculated below:

So, Cash flows from operating Activities is $ 3,200,000. So, option 4 is the correct option.

Particulars Amount ($) Net Income 1,900,000 Add: Non-Cash items Provision for doubtful accounts on short-term receivables 120,000 Provision for doubtful accounts on long-term receivables 100,000 Sub-Total 2,120,000 Add: Appropriations Depreciation on plant assets 600,000 Amortization of leasehold improvements 340,000 Interest paid on short-term borrowings 80,000 Interest paid on long-term borrowings 60,000 Cash Flows from Operating Activities 3,200,000

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