Final answer:
The cash flow from operating activities on the Year 1 statement of cash flows for Falloch, Inc. would be the entire cash payment amount $2,400, since it represents the outflow of cash within the year, regardless of the period the service covers.
Step-by-step explanation:
The question pertains to how to report cash flows from operating activities in the scenario where Falloch, Inc. paid $2,400 cash for an office space rental on November 1 of Year 1, with a fiscal year ending on December 31. To calculate the cash flow from operating activities that would appear on the Year 1 statement of cash flows, we must consider that this payment is for a twelve-month period, while only two months pertain to Year 1.
Since there are two months (November and December) of benefit that relate to Year 1 and the total cost is $2,400 for twelve months, we calculate the monthly cost at $2,400 / 12 months = $200 per month. Therefore, the cost attributable to Year 1 is $200 x 2 months = $400. The remaining $2,000 ($2,400 - $400) is a prepayment for the future period and would be classified as prepaid expenses on the balance sheet.
Answer: The amount of cash flow from operating activities appearing on the Year 1 statement of cash flows would be C. ($2,400), as the entire amount was paid in cash during Year 1, even though part of the benefit of that payment pertains to the following year.