Financing Cash Flow Calculation | CFA Level 1 Exam

CashCow, Inc. Financial Data: Financing Cash Flow

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Question

The following financial data on CashCow, Inc. have been taken from its financial statements for 1996: a. Dividends paid$25,000 b. Sale of land$64,000 c. Inventory purchases$29,000 d. Purchase of a warehouse$208,000 e. Bonds issued$90,000 f. Dividends received from investments$17,000 g. Interest paid on bonds$2,400 h. Salaries paid$107,400 i. Cash collection from customers$28,400 j. Loss on land sale$18,000 k. Beginning cash balance$312,000

In the above question, the financing cash flow is ________.

Answers

Explanations

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A. B. C. D.

D

Items a and e are the financing cash flows.

To determine the financing cash flow for CashCow, Inc. based on the given financial data, we need to identify the cash flows associated with financing activities. Financing activities generally involve obtaining or repaying capital to finance the company's operations.

Let's analyze the given data and categorize the cash flows as either operating, investing, or financing activities:

Operating Activities:

  • Dividends received from investments: $17,000 (This represents cash inflow from operating activities.)

Investing Activities:

  • Sale of land: $64,000 (This represents cash inflow from investing activities.)
  • Purchase of a warehouse: $208,000 (This represents cash outflow for investing activities.)
  • Loss on land sale: $18,000 (This represents a non-cash expense and does not impact cash flow.)

Financing Activities:

  • Dividends paid: $25,000 (This represents cash outflow for financing activities.)
  • Bonds issued: $90,000 (This represents cash inflow from financing activities.)
  • Interest paid on bonds: $2,400 (This represents cash outflow for operating activities, not financing activities.)
  • Beginning cash balance: $312,000 (This represents the cash balance at the beginning of the period and is not relevant for determining cash flows.)

Now, let's calculate the net cash flow from financing activities: Cash inflows from financing activities:

  • Bonds issued: $90,000

Cash outflows from financing activities:

  • Dividends paid: $25,000

Net cash flow from financing activities: $90,000 - $25,000 = $65,000

Therefore, the financing cash flow for CashCow, Inc. based on the given financial data is $65,000.

Among the provided answer choices, the correct option is: D. $65,000

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