Question

On January 12, Ferrell Incorporated obtains a permit to start a comedy club, which will operate only on Saturday nights. To prepare the club for the grand opening, Ferrell purchases tables, chairs, ovens, and other related equipment for $55,000 on January 16. Ferrell pays 20% of this amount (= $11,000) in cash at the time of purchase and signs a note with Live Bank for the remaining amount. Determine the amount of investing cash flows Ferrell would report in January.

Answer 1

Answer:

The answer is: -$11,000

Explanation:

The amount of investing cash flows Ferrell Incorporated would report in January should be -$11,000. It is the amount that Ferrell paid in cash. 80% of the purchase or $44,000 is financed by Live Bank and, therefore, will not be included in the investing cash flows. The minus is included because it is an outflow. Because Ferrell Incorporated also obtained permit in January, there is no depreciation in the first month of ownership.