Exercise-3 (a):

The following activities were performed by L&M corporation during the year 2015.

Treasury stock purchased $35,000
Accounts payable paid $585,000
Note receivable collected $50,000
Dividends paid $190,000
Bonds payable issued $340,000
Common stock issued $175,000

Required: Compute net cash provided/used by financing activities to be reported in the statement of cash flows of L&M corporation.

Solution:

Cash flows from financing activities:
Issuance of common stock $175,000
Issuance of bonds payable $340,000
Payment of dividends $(190,000)
Purchase of treasury stock $(35,000)

Net cash provided by financing activities $290,000

Note: The following activities are not financing activitie and have therefore not been included in the above computation:

  1. Payment of accounts payable.
  2. Collection of note receivable.

Exercise-3 (b):

Consider the following information of a company:

Sale of common stock $880,000
Sale of preferred stock $120,000
Payment of dividends $56,000
Purchase of treasury stock $65,000

Required: Compute net cash provided/used by financing activities using above information.

Solution:

Cash flows from financing activities:
Issuance of common stock $880,000
Issuance of preferred stock $120,000
Cash paid for dividends* $(56,000)
Cash paid to purchase of treasury stock $(65,000)

Net cash provided by financing activities $879,000

*The payment of dividend is a financing activity under US-GAAP. For more details, read “financing activities section of statement of cash flows”.

Previous
Next