Question

In its first year of operations Trumbo Company reported net income of $257,000. Total sales, all on account, amounted to $486,000, and collections of receivables during the year totaled $396,500. Trumbo uses the allowance method in accounting for bad debts expense and during the year recorded bad debts expense of $21,000. Based on these facts alone, what is the net cash provided by operating activities?

A. $146,500
B. $188,500
C. $236,000
D. $325,500

Answer 1

The net cash provided by operating activities is A) $146,500.

Step-by-step explanation:

The net cash provided by operating activities can be determined by adjusting the net income to account for the changes in working capital. In this case, we need to consider the collections of receivables which amount to $396,500. By subtracting the collections from the net income, we get $257,000 - $396,500 = -$139,500.

Since the collections of receivables represent cash inflow, a negative result indicates that the net cash provided by operating activities is a positive amount.

Therefore, the correct answer is $146,500.