Question

Using the indirect method to prepare the statement of cash flows, Smith Company issued additional common stock for $36,000 cash and paid cash dividends of $3,000. They also paid $20,000 cash to retire a note payable. The net cash flows provided by / used for financing activities is--------------- A. $13,000. B. $(13,000). C. $(53,000). D. $53,000

Answer 1

The net cash flows provided by financing activities is $13,000. Smith Company issued common stock for $36,000, paid $3,000 in dividends, and retired a note for $20,000. The net cash flow is obtained by adding the cash received and subtracting cash spent.

Step-by-step explanation:

Using the indirect method to prepare the statement of cash flows, we need to calculate the net cash flows provided by or used for financing activities based on the transactions provided. Smith Company issued additional common stock, which is a source of cash, and they also had two uses of cash: paying dividends and retiring a note payable. To determine the net impact of these activities on financing:

• Issuing additional common stock: + $36,000
• Paying cash dividends: - $3,000
• Paying to retire a note payable: - $20,000

Now, we add the sources of cash and subtract the uses of cash to get the net cash flows for financing activities:

$36,000 (source) - $3,000 (use) - $20,000 (use) = $13,000

Therefore, the net cash flows provided by financing activities is $13,000, which is answer choice (A).