Question

Each of the items below must be considered in preparing a statement of cash flows for Baskerville Co. for the year ended December 31, 2017. For each item, state how it should be shown in the statement of cash flows for 2017. (a) Issued bonds for $200,000 cash. (b) Purchased equipment for $150,000 cash. (c) Sold land costing $20,000 for $20,000 cash. (d) Declared and paid a $50,000 cash dividend.

Answer 1

Answer:

a. Issued bonds for $200,000 cash ⇒ Cash inflow from Financing Activities.

Financing activities refer to those that bring in capital to the company. This capital comes in the form of equity and long term liabilities like bonds. Money coming in from bonds will therefore be an inflow here.

b. Purchased equipment for $150,000 cash. ⇒ Cash Outflow from Investing Activities

Investing activities have to do with the fixed assets of the company as well as investments into the securities of other companies. Money is leaving the company to purchase the fixed asset here -equipment - so this is an outflow.

c.Sold land costing $20,000 for $20,000 cash. ⇒  Cash inflow from Investing Activities.

As already stated, Investing activities relate to fixed assets. Selling a fixed asset such as land will therefore bring in cash from investing activities.

d. Declared and paid a $50,000 cash dividend⇒ Cash Outflow from Financing activities

As financing activities relate to equity, dividends will be a cash outflow from here because it is cash that is leaving the company to go to equity holders.