Question

A review of Young's Garden's Center statement of cash flows showed the following: Cash flows from operating activities $ 15,000 Cash flows from investing activities 80,000 Cash flows from financing activities (60,000) From this information, the most likely explanation is that Young's is a.using cash from operations and borrowing to purchase long-term assets. b.using cash from operations and selling long-term assets to pay back debt. c.using cash from investors to provide for operations. d.using its profits to expand growth.

Answer 1

Answer:

b.using cash from operations and selling long-term assets to pay back debt.

Explanation:

There are three types of activities in the cash flow statement which are described below:  

1. Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.  

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income

2. Investing activities: It records those activities which include purchase and sale of the long term assets. The purchase is an outflow of cash whereas sale is an inflow of cash

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance. The issue of shares is an inflow of cash whereas redemption and dividend is an outflow of cash.

Since the investing and operating activities is positive and the financing activity comes in negative. So, the most appropriate option is b.