Question

Smith Law Firm specializes in the preparation of wills for estate planning. On October 1, 2021, the company begins operations by issuing stock for $11,000 and obtaining a loan from a local bank for $16,000. By the end of 2021, the company provides will preparation services of $23,000 cash and pays employee salaries of $14,000. In addition, Smith pays $1,100 in cash dividends to stockholders on December 31, 2021.

Required:

Determine the amount of financing cash flows Smith would report in 2012.

Answer 1

$25,900

Step-by-step explanation:

The cash inflow and outflow occured due to borrowing or repaying

In this question the cash flow relates to the finances obtained by the company as follows;

Operational cost + Loan obtained - Dividend

$11,000 + $16,000 - $1,100 = $25,900

Answer 2

Financing cash flows will be as follows;

Step-by-step explanation:

Stocks $11,000

Loan $16,000

Dividends paid ($1,100)

Cashflows from financing activities $25,900

The salaries paid and service revenues received are shown in operating activities, therefore they are not shown in financing activities of cash flow statement.