Question

Investing and Financing Cash Flows

The following information was obtained from Melville Company's comparative balance sheet.

	End of Year	Beginning of Year
Cash	$19,000	$9,000
Accounts receivable	50,000	35,000
Inventory	55,000	49,000
Prepaid rent	6,000	8,000
Long-term investments	21,000	32,000
Plant assets	140,000	106,000
Accumulated depreciation	(42,000)	(32,000)
Accounts payable	24,000	22,000
Income tax payable	4,000	6,000
Common stock	127,000	92,000
Retained earnings	106,000	91,000
Capital expenditures	15,200

Assume that Melville Company’s income statement showed depreciation expense of $10,000, a gain on sale of investments of $7,000, and a net income of $60,000.

During the year, Melville Company purchased plant assets for cash, sold investments for cash (the entire $7,000 gain developed during the year), and issued common stock for cash. The firm also declared and paid cash dividends.

What items and amounts will appear in (a) the cash flow from investing activities and (b) the cash flow from financing activities sections of a statement of cash flows?

Use a negative sign with cash outflow answers.

a.

Cash flow from investing activities will show
Purchase of plant assets	Answer
Sale of investments	Answer

b.

Cash flow from financing activities will show
Issuance of common stock	Answer
Payment of dividends

Answer 1

CASH FLOW FROM INVESTMENT ACTIVITY

PARTICULARS	AMOUNT($)
sale of the long term investment(11000+7000)	18000
purchase of plant asset(140000-106000)	(34000)
Net outflow made in investment activity	(16000)

CASH FLOW FROM FINANCING ACTIVITY

PARTICULARS	AMOUNT($)
Issuance of common stock(127000-92000)	35000
Payment of cash dividend9106000-91000-60000)	(45000)
Net outflow from financing activity	(10000)