Question

A company has a net cash inflow from operating activities of $798,000, a net cash outflow of $68,000 from investing activities, and a net cash inflow of $101,300 from financing activities. The company paid $133,000 in interest, $191,000 in income taxes, and $209,000 in cash dividends. Which of the following statements about the statement of cash flows is not correct?

Options:

a) Supplemental disclosures required for a company using the indirect method include the amount of interest and the amount of income taxes paid.

b) The cash dividends of $209,000 paid will be reported as a cash outflow in the cash flow from investing activities section.

c) The statement of cash flows will show a net increase in cash and cash equivalents of $831,300.

d) If the direct method is used, the $133,000 of interest paid and the $191,000 of income taxes paid will be reported in the cash flows from operating activities.

Answer 1

The cash dividends of $209,000 paid will be reported as a cash outflow in the cash flow from investing activities section is not correct.

Step-by-step explanation:

The statement of cash flows summarizes the cash inflows and outflows of a company from its operating, investing, and financing activities. It helps users understand how a company generates and uses cash over a specific period. Based on the given information:

1. The correct option is b) The cash dividends of $209,000 paid will be reported as a cash outflow in the cash flow from investing activities section. Cash dividends are considered a financing activity and should be included in the financing activities section, not the investing activities section.
2. Supplemental disclosures required for a company using the indirect method include the amount of interest and income taxes paid. This is in accordance with the generally accepted accounting principles (GAAP).
3. The net increase in cash and cash equivalents of $831,300 is calculated by summing up the net cash inflow from operating activities ($798,000), net cash outflow from investing activities ($68,000), and net cash inflow from financing activities ($101,300).
4. If the direct method is used to prepare the statement of cash flows, the $133,000 of interest paid and the $191,000 of income taxes paid will be reported in the cash flows from operating activities section.