Northbrook Corporation is preparing a statement of cash flows. The following transaction occurred during the year:...

Northbrook Corporation is preparing a statement of cash flows. The following transaction occurred during the year: “Issued $70,000 worth of stock to acquire an airplane” Where would this transaction appear on the statement of cash flows?

options: 1) Cash flows from operating activities section. 2) Cash flows from investing activities section. 3) Cash flows from financing activities section. 4) Noncash investing and financing transactions section.

Expert Solution

The Correct answer is Option 4 - Noncash investing and financing transactions section.

The Noncash investing and financing transactions arise from those activities which would not effect the Cash and Cash equivalents. It would include transaction where company would acquire an asset and issue its stock to fund the acquisition. These transactions would not involve direct cash inflow or outflow but they are significant business transactions which is important for any business.

Northbrook Corporation issued $70,000 worth of stock to acquire an airplane. In this transaction the company made the acquisition of the asset by issuing stocks. Therefore it did not resulted in any direct cash inflow or outflow and at the same time the company acquired the airplane. Such acquisition by the issue of stock is a significant business transaction and thus it will appear in the Noncash investing and financing transactions section.

ekkarill92 answered 1 year ago

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