A business enters into the following transactions during the year:

1. Issued $25,000 of ordinary shares for Cash

2. Issued a longterm note in exchange for a machine worth $45,000

3. Received $21,000 in cash from Account receivable

4. Paid $7,000 on accounts payable

5. Paid a cash dividend of $78,000

6. Sold an old equipment for $20,000 cash

What is total net cash from Operating Activities?

Question

A business enters into the following transactions during the year:

1. Issued $25,000 of ordinary shares for Cash

2. Issued a longterm note in exchange for a machine worth $45,000

3. Received $21,000 in cash from Account receivable

4. Paid $7,000 on accounts payable

5. Paid a cash dividend of $78,000

6. Sold an old equipment  for $20,000 cash

What is total net cash from Operating Activities?

BlackTom AI · Accepted Answer

Begin by identifying which of the listed transactions affect operating activities versus financing or investing activities.

1) Issuing ordinary shares for cash is a financing activity, not part of operating activities, so it does not contribute to net cash from operating activities.

2) Issuing a long-term note in exchange for a machine is a non-cash financing/investing activity. Since no cash changes hands, it does not affect operating cash flow.

3) Receiving cash from accounts receivable is an operating activity. This represents cash collected from customers, reducing AR, and increases operating cash by +$21,000.

4) Paying on accounts payable is an operating activity. Reducing a liability with cash out, this decreases operating cash by -$7,000.

5) Paying a cash dividend is a financing activity, not operating. It does not enter into net cash from operating activities.

6) Selling old equipment for cash is an investing activity. While it affects investing cash flows, it does not impact operating cash flows.

Now combine the operating activities only: start with the cash receipts from customers (+$21,000) and subtract the cash paid to suppliers/creditors (-$7,000). This yields net cash from operating activities of +$14,000.

Consider why the other options are not correct: 
- None of the above would be chosen if the net operating cash were different, but here we have a positive $14,000 as shown above.
- ($19,000) would imply either a larger negative operating cash flow or misclassification of several items, which isn’t supported by the data.
- ($64,000) would require substantial outflows within operating activities, inconsistent with only the AR collections and payable payments reported.

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