Question

Assume the perpetual inventory method is used.

1) The company purchased $13,900 of merchandise on account under terms 2/10, n/30.

2) The company returned $3,400 of merchandise to the supplier before payment was made.

3) The liability was paid within the discount period.

4) All of the merchandise purchased was sold for $21,800 cash.

The net cash flow from operating activities as a result of the four transaction is:

A) $7,742.

B) $11,510.

C) $7,900

D) $11,578

Answer 1

Purchases made. $13900

Less: Purchase return -3400

______________________________

Amount of liability =. 10,500

Discount availed 2%

10500*2% =. -210

______________________________

Cash outflow 10,290

______________________________

Cash inflows from sales $21800

______________________________

Cash inflows from operating activities = cash inflow from sales - Cash outflow for purchase

21800 - 10290

$11510

So,net cash flow from operating activities as a result of the four transaction is:

B) $11,510.