Question

Selected information from Peridot Corporation's accounting records and financial statements for 2021 is as follows ($ in millions): Cash paid to acquire machinery $ 38 Reacquired Peridot common stock 56 Proceeds from sale of land 96 Gain from the sale of land 46 Investment revenue received 71 Cash paid to acquire office equipment 86 In its statement of cash flows, Peridot should report net cash outflows from investing activities of:

Answer 1

Answer:

$43 million

Explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.  

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.

Peridot's Net cash outflows from investing activities (in millions)

= -$38 + $96 + $71 - $86

= $43

The gain from the disposal of land will be deducted from the net income under the cash flows from operating activities while the requisition of own shares is a financing activity.