Question

Ex. 5 Using the following information:

Purchase of treasury stock        $40,000

Proceeds from sale of equipment      25,000

Interest expense on borrowing   3,000

Issuance of bonds payable       52,500

Payment of dividends           10,000

Gain on sale of equipment       2,000

Stock dividends           15,000

Issuance of common stock       20,000

Compute the cash flow from financing activities.

Compute the cash flow from investing activities.

Answer 1

• All working forms part of the answer
• Requirement 1: Cash flow from financing activities

Cash Flows from Financing Activities
Purchase of Treasury Stock	$                                 (40,000.00)
Issuance of Bonds Payable	$                                   52,500.00
Payments of Dividends	$                                 (10,000.00)
Issuance of Common Stock	$                                   20,000.00
Net Cash Flows from Financing Activities	$                                   22,500.00

• Requirement 2: Cash flow from Investing activities

Cash Flows from Investing Activities
Proceeds from sale of Equipment	$                                   25,000.00
Cash Flows from Investing Activities	$                                   25,000.00

• Reasons why remaining items are not considered:

Items	Amount	Reasons for exclusion
Interest expense on borrowing	$                                     3,000.00	Does not necessarily invloves flow of cash
Gain on Sale of Equipment	$                                     2,000.00	Adjusted in Operating activities section under Indirect Method
Stock dividends	$                                   15,000.00	Does not involve any cash flows