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 investing cash flow is ________.
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A. B. C. D.C
Items b and d are the investing cash flows. Note that item j is a non-cash event.
To determine the investing cash flow for CashCow, Inc., we need to identify the cash flows related to the acquisition and sale of long-term assets or investments. Let's go through the given financial data and categorize each item accordingly:
a. Dividends paid: Dividends paid are considered financing activities, not investing activities, as they represent cash outflows to the shareholders. Therefore, we exclude this item from the investing cash flow.
b. Sale of land: This represents the cash inflow from the sale of a long-term asset (land). It is considered an investing activity. So, we include this item in the investing cash flow.
c. Inventory purchases: Inventory purchases involve the acquisition of current assets and are considered operating activities. Therefore, we exclude this item from the investing cash flow.
d. Purchase of a warehouse: This represents the cash outflow for the acquisition of a long-term asset (warehouse). It is considered an investing activity. So, we include this item in the investing cash flow.
e. Bonds issued: Bonds issued involve the borrowing of funds and are considered financing activities, not investing activities. Therefore, we exclude this item from the investing cash flow.
f. Dividends received from investments: Dividends received from investments are considered operating activities, as they represent cash inflows related to the company's ownership in other entities. Therefore, we exclude this item from the investing cash flow.
g. Interest paid on bonds: Interest paid on bonds is an expense and is considered an operating activity. Therefore, we exclude this item from the investing cash flow.
h. Salaries paid: Salaries paid are operating expenses and are considered operating activities. Therefore, we exclude this item from the investing cash flow.
i. Cash collection from customers: Cash collection from customers is the cash inflow from operating activities. Therefore, we exclude this item from the investing cash flow.
j. Loss on land sale: This represents a loss incurred from the sale of land and is considered an investing activity. Since it is a loss, it would be a cash outflow. So, we include this item in the investing cash flow.
k. Beginning cash balance: The beginning cash balance is the opening balance of cash on hand. It is not directly related to investing activities, so we exclude this item from the investing cash flow.
Now, let's calculate the net cash flow from investing activities:
Cash inflows: Sale of land: $64,000
Cash outflows: Purchase of a warehouse: -$208,000 Loss on land sale: -$18,000
Net cash flow from investing activities: $64,000 - $208,000 - $18,000 = -$162,000
Therefore, the investing cash flow for CashCow, Inc. is -$162,000. Option D, -$162,000, is the correct answer.