Question

Strawbale, Inc. purchases a $600,000 building, paying $400,000 in cash and signing a $200,000 promissory note. What will be reported on the statement of cash flows as a result of this transaction?A. A $600,000 cash outflow from investing activitiesB. A $400,000 cash outflow from investing activities and a $200,000 cash inflow from financing activitiesC. A $400,000 cash outflow from investing activities and a $200,000 noncash transactionD. A $600,000 cash outflow from investing activities and a $200,000 cash inflow from financing activities

Answer 1

Answer:

The answer is C.

Explanation:

Statement of cash flow recognizes only cash transactions and does not reckon with non cash transaction.

Fine the purchase of the building cost $600,000 in total but for thr sake of cash flow statement, what goes in the only cash transaction of $400,000.

It is an outflow because money goes out from the firm to purchase the building.

And it is an investing activities because the building belongs to property, plant and equipment and it will give a future inflows