Question

Selected data for Kris Corporation’s comparative balance sheets for Year 1 and Year 2 are as follows:

		Year 1				Year 2
Assets
Cash		$	100,000			$	(50,000)
Accounts receivable (net)			50,000				100,000
Inventory			100,000				250,000
Equipment (net)			300,000				350,000
Total assets		$	550,000			$	650,000
Liabilities and Equity
Accounts payable		$	150,000				100,000
Income taxes payable			80,000				30,000
Bonds payable			100,000				80,000
Common stock			100,000				200,000
Retained earnings			120,000				240,000
Total liabilities and Equity		$	550,000			$	650,000

1. The change in the equipment balance would be recorded on the statement of cash flows as:

A) a decrease of $50,000 under investing activities.

B) an increase of $50,000 under investing activities.

C) a decrease of $150,000 under investing activities.

D) an increase of $150,000 under operating activities.

2. The change in the balance of the Bonds Payable account would be recorded on the statement of cash flows as:

A) an increase of $20,000 under financing activities.

B) an increase of $80,000 under investing activities.

C) a decrease of $20,000 under financing activities.

D) a decrease of $80,000 under operating activities.

Answer 1

1)

Equipment account increased by $50,000 which means cash has been invested into equipment of amount $50,000.

Since this is cash outflow, therefore it will be recorded as decrease of $50,000 in the investing activities of cash flow statement.

Hence the option (B) is correct.

2)

Bond Payable has decrease by $20,000 which means cash of $20,000 has been paid to repay the bond due.

Since, this is cash outflow, therefore it will be recorded as decrease of $20,000, under the financing activities of the cash flow statement.

Thus the option (C) is correct.