Question

Cosmat Inc. reported net income of $128,000 for 20Y9. The liability and equity accounts from the company’s comparative balance sheet are as follows:

Dec. 31, 20Y9 Dec. 31, 20Y8
Accounts payable $57,920 $53,810 Dividends payable 20,000 16,000 Bonds payable 290,000 450,000 Common stock, $10 par value 180,000 120,000 Paid-in capital in excess of par—common stock 328,000 232,000 Retained earnings 488,000 375,000 During the year, the company retired bonds payable at their face amount, declared dividends of $15,000, and issued 6,000 shares of common stock for $26 per share.
Prepare the Cash Flows from (used for) Financing Activities section of the statement of cash flows. Use the minus sign to indicate cash outflows, cash payments, decreases in cash, or any negative adjustments.

Answer 1

Cosmat Inc.'s Cash Flows from (used for) Financing Activities section shows a cash inflow from issuing common stock of +$156,000, an outflow from paying dividends of -$15,000, and an outflow from retiring bonds payable of -$160,000. The total net cash used for financing activities is -$19,000.

Step-by-step explanation:

Cash Flows from Financing Activities

To prepare the Cash Flows from (used for) Financing Activities section of the statement of cash flows for Cosmat Inc., we analyze changes in equity and long-term liabilities to determine cash inflows and outflows related to financing activities during 20Y9.

Payment of Dividends: Cosmat Inc. declared dividends of $15,000. Assuming that all the declared dividends were paid, the cash outflow is -$15,000.

Retirement of Bonds Payable: Bonds payable decreased by $160,000 (from $450,000 to $290,000). This decrease represents a cash outflow as the company used cash to retire the bonds, so -$160,000.

Issuance of Common Stock: 6,000 shares of common stock were issued for $26 per share. The cash inflow from this issuance is 6,000 shares × $26/share = $156,000.

The cash flows from financing activities can be summarized as follows:

Issuance of common stock: +$156,000

Payment of dividends: -$15,000

Retirement of bonds payable: -$160,000

The total net cash used for financing activities is +$156,000 - $15,000 - $160,000 = -$19,000.