Below is an example of an incorrectly prepared statement of cash flows. The descriptions of activities are correct.
Cash from operating activities $60,000
Net Income (4,000)
Depreciation (2,000)
Increase in accounts receivable (1,000)
Increase in deferred tax liability $53,000
Cash from investing activities ($48,000)
Purchase of marketable securities 2,500
Dividends received 1,500 -
Dividends paid ($44,000)
Cash from financing activities (500)
Increase in Short-term debt (2,500)
Increase in Long-term debt ($3,000)
Increase in cash $6,000 -
The correct Cash flows from investing activities is ________.
Click on the arrows to vote for the correct answer
A. B. C. D.D
The dividends received is an operating activity and the dividend paid is a financing activity.
To determine the correct cash flows from investing activities, we need to analyze the information provided and make adjustments where necessary.
Let's start by examining the given information for cash flows from operating activities:
Cash from operating activities = $60,000 Net Income = ($4,000) Depreciation = ($2,000) Increase in accounts receivable = ($1,000) Increase in deferred tax liability = $53,000
From the given information, we can see that the net income is subtracted from cash from operating activities, which is correct. However, depreciation, increase in accounts receivable, and increase in deferred tax liability are incorrectly included as deductions from cash from operating activities. These items should be added back because they do not involve actual cash outflows.
Adjusted cash from operating activities: $60,000 (Cash from operating activities) +$4,000 (Net Income) +$2,000 (Depreciation) +$1,000 (Increase in accounts receivable) -$53,000 (Increase in deferred tax liability)
Adjusted cash from operating activities = $14,000
Next, let's analyze the given information for cash flows from financing activities:
Cash from financing activities = ($500) Increase in Short-term debt = ($2,500) Increase in Long-term debt = ($3,000)
From the given information, we can see that the increase in short-term debt and increase in long-term debt are incorrectly subtracted from cash from financing activities. These items should be added back because they represent cash inflows from borrowing activities.
Adjusted cash from financing activities: ($500) (Cash from financing activities) +$2,500 (Increase in short-term debt) +$3,000 (Increase in long-term debt)
Adjusted cash from financing activities = $5,000
Finally, to find the correct cash flows from investing activities, we need to examine the given information:
Cash from investing activities = ($48,000) Purchase of marketable securities = $2,500 Dividends received = $1,500 Dividends paid = ($44,000)
From the given information, we can see that the purchase of marketable securities and dividends received are correctly included as deductions from cash from investing activities. However, dividends paid should be subtracted from cash from financing activities, not cash from investing activities.
Adjusted cash from investing activities: ($48,000) (Cash from investing activities) -$2,500 (Purchase of marketable securities) -$1,500 (Dividends received) +$44,000 (Dividends paid)
Adjusted cash from investing activities = ($7,000)
Therefore, the correct cash flows from investing activities is ($7,000). None of the provided answer options (A. ($45,500), B. ($41,000), C. None of these answers, D. ($48,000)) matches the correct answer, so the correct option would be C. None of these answers.