Question

Exercise 12-8 Cash flows from financing activities LO P3 Net income was $35,000. Issued common stock for $64,000 cash. Paid cash dividend of $14,600. Paid $50,000 cash to settle a note payable at its $50,000 maturity value. Paid $12,000 cash to acquire its treasury stock. Purchased equipment for $39,000 cash. Use the above information to determine this company’s cash flows from financing activities. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

Cash flows from financing activities = -$12600

Explanation:

Before we determine this company's cash flows from financing activities we should understand what components or cash flows are and/or can be associated with financing activities of a business. Cash flows from financing activities include all those cash flows that are received/paid in financing/funding the entity's operations. All those cash flows that are related to raising funds/finance for the business which normally include cash from issuance of equity/debt/, settlement of mature instruments etc.

So in the question the cash flows that relate to financing activities are as follows;

issued common stock =$64000

paid cash dividend = $14600

settlement of note payable = $50000

payment to acquire treasury stock = $12000

Cash flows from financing activities = $64000 -$14600 -$50000 -$12000

Cash flows from financing activities = -$12600

In this situation, the company is facing negative cash flows as company has received lower cash from financing and has paid/settled greater amounts.

Note: purchasing of equipment is a cash outflow from investing activities and net income generated is a cash inflow from operating activities.