The Hamada Company sales for 2021 totaled $155,000 and purchases totaled $90,000. Selected January 1, 2021, balances were: accounts receivable, $20,000; inventory, $15,600; and accounts payable, $11,500. December 31, 2021, balances were: accounts receivable, $15,300; inventory, $18,600; and accounts payable, $14,500. Net cash flows from these activities were:
a. $65,000.
b. $72,700.
c. $85,000.

$69,700

Explanation:

Prepare a Cash flow from Operating Activities as the items relate to Operating Activities.

Profit ($155,000-$90,000)                         65,000

Adjustments for Working Capital Items :

Decrease in accounts receivable                4,700

Increase in inventory                                   (3,000)

Increase in accounts payable                      3,000

Net Cash From Operating Activities          69,700

b. $72,700.

Explanation:

Cash flow from operating activities involved all the cash flows related to the operations of the company like sales , purchases, receivable, payable etc.

We make some adjustment in the net income for the period to calculate the cash flow from operating activities.

These adjustments includes all non cash expenses and working capital changes.

Working Capital Accounts Changes

Account                         January 1, 2021   December 31, 2021

Accounts Receivables    $20,000            $15,300  decreased by $4,700

Account Payable             $11,500              $14,500  Increased by $3,000

First we need to calculate the Net Income

Sales                                     $155,000

Purchases                             $90,000

Net Income                                                   $65,000

Decrease in Account Receivables $4,700

Increase in Account Payable          $3,000

                                                                      $7,700    

Net Cash flow from operating activities      $72,700