Question

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Perry Corporation reported net income of $136,200 for the year ended December 31, 2021. January 1...

Perry Corporation reported net income of $136,200 for the year ended December 31, 2021. January 1 balances in accounts receivable and accounts payable were $28,800 and $27,400, respectively. Year-end balances in these accounts were $30,500 and $22,700, respectively. Assuming that all relevant information has been presented, Perry's cash flows from operating activities would be:

Multiple Choice

$137,900.
$76,900.
$142,600.
$129,800.

Expert Solution

Ans.=

Given,

Net Income = $136,200

Opening Accounts Receivable = $28,800

Opening Accounts Payable = $27,400

Closing Accounts Receivable = $30,500

Closing Accounts Payable = $22,700

Hence,

Net Increase / (decrease) in accounts receivable = $28,800 - $30,500 = (1700)

Net Increase / (decrease) in accounts payable = $27,400 - $22,700 = 4,700

Particulars	Amount
Cash Flow from Operating Activity
Net Income	$136,200
+ / - Changes in Working Capital
Add: Decrease in Accounts Receivable*	$1,700
Add: Increase in Accounts Payable*	$4,700
Total Cash flow from Operating Activities =	$142,600

* When accounts receivable increases, it means that the company sold their goods on credit. So, there was no cash transaction and therefore, increase in accounts receivable are subtracted from net income.

On the other hand, if a current liability item such as accounts payable increases, this is considered as cash inflow because the company has more cash to keep in its business and therefore, it is added to net income.

Hence,

Option (C),i.e, $142,600 is the correct answer.

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ekkarill92 answered 1 year ago

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