Question

On July 24, 1909 Duquesne Amusements and Supply Company in Pittsburgh—owned by brothers Harry, Albert, Jack, and Sam Warner—sold all its assets to General Film Corporation for $52,000. General Film paid the Warners $10,000 in cash, $12,000 in preferred stock, and signed a four-year note for the balance to be paid in equal monthly cash installments beginning August 1, 1909. The Warner brothers used the proceeds from the sale to launch their own film production and distribution company, eponymously named Warner Brothers.

Based on this transaction alone, had General Film Corporation been required during that era to file a cash flow statement (using the guidelines we use today), how much would the company have reported as net cash from Operating Activities on Dec. 31, 1909?

Answer 1

Cash From operating activities focuses in cash inflow & outflows from a company's main business activities of buying & selling merchandise, providing services etc.

Here company has purchase business of Duquesne Amusements and Supply Company, means company has made invetsment in that company.

Therefore cash paid $10,000 come under cash outflow from Investing Activity

Preferred stock issued doesn't affect the cash balance, so it will not come under cash flow statement

Notes issued generally comes under cash outflow from financing activities, but here it is issued for making investment it can be shown under cash outflow from Investing Activities

Therefore Amount to be reported under net cash from Operating Activities = Zero.

-------------------------------------------------------------------

Note

If you have any queries kindly post a comment, i will solve it earliest.

If you satisfied with my answer, kindly give a thumbs up, it will help to encourage me.