Question

Packard Company engaged in the following transactions during Year 1, its first year of operations. (Assume all transactions are cash transactions.)

1. 1) Acquired $1,100 cash from the issue of common stock.
2. 2) Borrowed $570 from a bank.
3. 3) Earned $750 of revenues cash.
4. 4) Paid expenses of $280.
5. 5) Paid a $80 dividend.

During Year 2, Packard engaged in the following transactions. (Assume all transactions are cash transactions.)

1. 1) Issued an additional $475 of common stock.
2. 2) Repaid $325 of its debt to the bank.
3. 3) Earned revenues of $900 cash.
4. 4) Incurred expenses of $420.
5. 5) Paid dividends of $130.

What is the amount of Packard Company's net cash flow from financing activities for Year 2?

• Net outflow of $455.

• Net outflow of $325.

• Net inflow of $345.

• Net inflow of $20.

Answer 1

For cash flow under financing activities, this involve activities that are not related to ordinary course of business and are related to the funding of the company. Dividends paid and repayment of debt are uses of cash flow and Issuance of common stock is source of the cash flow. The net cash inflow from financing activity is calculated as below

Packard Company's
Net cash flow from financing activities for Year 2:
Issuance of common stock = $475
Repaid debt to the bank = $(325)
Dividend paid =   $(130)
Net cash flow from fiancing activities  = $20 (Sum of all three items above)

Therefore, net cash inflow is $20 as calculated above. The other options are incorrect as they are considering only one aspect.