The following account balances are for Curran Company: Additional data for Year 2:
(1) Sales on account for the period totaled $100,000.(2) Salary expense was $14,000.(3) Rent expense was $12,000.Based on this information, what was the net cash inflow from operating activities for Year 2?
$$\begin{array} { | l | r | r | }
\hline & 12 / 31 / 2013 & 12 / 31 / 2014 \
\hline \text { Accounts receivable } & \$ 84,000 & \$ 60,000 \
\hline \text { Prepaid rent } & 8,000 & 4,000 \
\hline \text { Long-term marketable securities } & 80,000 & 70,000 \
\hline \text { Dividends payable } & 6,000 & 2,000 \
\hline \text { Salaries payable } & 8,000 & 2,000 \
\hline \text { Notes payable } & 44,000 & 34,000 \
\hline
\end{array}$$
A)$88,000.
B)$84,000.
C)$92,000.
D)$74,000.

Question

The following account balances are for Curran Company: Additional data for Year 2:
(1) Sales on account for the period totaled $100,000.(2) Salary expense was $14,000.(3) Rent expense was $12,000.Based on this information, what was the net cash inflow from operating activities for Year 2?
$$\begin{array} { | l | r | r | } 
\hline & 12 / 31 / 2013 & 12 / 31 / 2014 \
\hline \text { Accounts receivable } & \$ 84,000 & \$ 60,000 \
\hline \text { Prepaid rent } & 8,000 & 4,000 \
\hline \text { Long-term marketable securities } & 80,000 & 70,000 \
\hline \text { Dividends payable } & 6,000 & 2,000 \
\hline \text { Salaries payable } & 8,000 & 2,000 \
\hline \text { Notes payable } & 44,000 & 34,000 \
\hline
\end{array}$$
A)$88,000.
B)$84,000.
C)$92,000.
D)$74,000.

Quizplus · Accepted Answer

The net cash inflow from operating activities is calculated by adjusting net income for changes in working capital. Sales on account were $100,000, but accounts receivable decreased by $24,000 ($84,000 - $60,000), indicating $24,000 was collected in cash. Salary expense was $14,000, but salaries payable decreased by $6,000 ($8,000 - $2,000), indicating $20,000 was paid in cash. Rent expense was $12,000, but prepaid rent decreased by $4,000 ($8,000 - $4,000), indicating $16,000 was paid in cash. Therefore, the net cash inflow is $100,000 (sales) - $20,000 (salaries paid) - $16,000 (rent paid) = $64,000. However, the correct calculation should consider the cash collected from accounts receivable, leading to $88,000 ($100,000 + $24,000 - $20,000 - $16,000).

The Following Account Balances Are for Curran Company: Additional Data