Question

What amount should Dunbarn report as cash provided (used) by investing activities in its statement of cash flows for the year

Answer 1

Complete Question:

Dunbarn Co. had the following activities during the year:

Purchase of inventory$120,000

Purchase of equipment 80,000

Purchase of available-for-sale securities 60,000

Purchase of treasury stock 70,000

Issuance of common stock 150,000

What amount should Dunbarn report as cash provided (used) by investing activities in its statement of cash flows for the year?A. $(120,000)B. $(140,000)C. $(210,000)D. $150,000

Answer:

Dunbarn Co.

The amount Dunbarn Ltd should report as cash provided (used) by investing activities in its statement of cash flows for the year is:

B. $(140,000)

Explanation:

a) Investing outflows:

Purchase of equipment                            $80,000

Purchase of available-for-sale securities  60,000

Total spent on investing activities         $140,000

b) Investing activities are the financial activities that an entity engages in to increase its stock of owned resources.  They include cash inflows and outflows around the acquisition of long-term assets and securities.  These are investments made so that the firm can generate more resources for itself.  The purchase of inventory falls under operating activities, as inventory forms part of the main business of the entity.  The purchase of treasury stock and issuance of common stock are classified as financing activities and not investing activities.  This leaves the purchase of equipment and available-for-sale securities as the only investing activities during the year.