Net Cash Flow from Investing

Net Cash Flow from Investing

Prev Question Next Question

Question

The following information should be used according to the provisions of SFAS 95 (Statement of Cash flows) and using the following data.

Net Income $50,000 -

Provision for bad debts $2,000 -

Increase in Inventory $1,000 -

Increase in accounts payable $2,000

Purchase of new equipment $15,000

Sale of equipment for $10,000 gain $20,000

Depreciation expense $5,000 -

Repurchase of common stock $10,000

Payment of dividend $4,000 -

Interest payment $3,000 -

What is net cash flow from investing?

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C. D.

Explanation

Outflow of $15,000 for new equipment and $20,000 inflow from sale.

To determine the net cash flow from investing activities, we need to consider the cash flows related to the purchase and sale of long-term assets (equipment), as well as any other investing activities.

Let's break down the information provided:

  1. Purchase of new equipment: $15,000 This represents an outflow of cash as the company is spending $15,000 on acquiring new equipment. This is a negative cash flow from investing activities.

  2. Sale of equipment for $10,000 gain: $20,000 The company sold equipment and earned a gain of $10,000. Since gains are not included in the operating section, we add the gain to the sale price to determine the cash inflow. Therefore, the cash inflow from the sale of equipment is $20,000 (sale price) + $10,000 (gain) = $30,000. This is a positive cash flow from investing activities.

  3. Net cash flow from investing activities: To calculate the net cash flow from investing activities, we need to sum up the cash inflows and cash outflows related to investing activities:

    Cash inflow from the sale of equipment: $30,000 Cash outflow from the purchase of new equipment: ($15,000)

    Net cash flow from investing activities = $30,000 - $15,000 = $15,000

Therefore, the correct answer is A. $10,000

Prev Question Next Question