Question

The following items are relevant to the preparation of a statement of cash flows for Tropical Products Inc.

1. Sale of common stock, $500,000.
2. Retirement of bonds payable, $355,000.
3. Purchase of land, $10,000.
4. Sale of equipment for $24,000, at a loss of $5,000.
5. Purchase of equity securities (not held in a trading account), $10,000.
6. Declaration of cash dividends, $40,000.
7. Loan of $30,000 resulting in a note receivable, non-trade.
8. Purchase of a patent, $20,000.
9. Proceeds from the issuance of a short-term nontrade note, $10,000.
a. Determine the amount of net cash flows that would be reported in the investing section of a statement of cash flows.
b. Determine the amount of net cash flows that would be reported in the financing section of a statement of cash flows.

Answer 1

Answer and Explanation:

The computation is shown below;

1. Cash flow from investing activities

Purchase of land, -$10,000.

Sale of equipment $24,000

Purchase of equity securities -$10,000

Purchase of patent -$20,000

Loan in note receivable non trade -$30,000

Net cash used by investing activities -$46,000

2. Cash flow from financing activities

Sale of common stock, $500,000.

Less Retirement of bonds payable, $355,000

Proceeds from the issuance of a short-term nontrade note, $10,000.

Net cash provided by financing activities $155,000