Question

The following changes occurred in accounts over the year: accounts payable increased by $8,000, bonds payable decreased by $14,000, common stock increased by $11,000, paid-in capital increased by $10,000, and retained earnings increased by $21,000. No dividends were paid during the year. What is the amount of net cash flows from financing activities?

a. $7,000
b. $25,000
c. $(7,000)
d. $21,000

Answer 1

Net cash flow from financing activities is calculated as the sum of increases in common stock and paid-in capital minus the decrease in bonds payable, totaling a. $7,000.

Step-by-step explanation:

To calculate the net cash flows from financing activities, we must consider the changes in equity and long-term liabilities. Accounts payable (a short-term liability), not typically included in financing activities, increased by $8,000, which affects cash flows from operations, so this is excluded from our calculation.

Now, let's look at the other accounts:

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• 
  
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We calculate net cash flow from financing activities as:

Net cash flow from financing activities = Increase in common stock + Increase in paid-in capital - Decrease in bonds payable

Net cash flow from financing activities = $11,000 + $10,000 - $14,000 = $7,000 (Option a)