Exercise-3 (Net cash provided/used by financing activities)

By: Rashid Javed | Updated on: October 24th, 2021

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:

exercise-3-socf-img1

Note: The following activities are not financing activities 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: $156,000
  • Purchase of treasury stock: $965,000

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

Solution:

exercise-3-socf-img2

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

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3 Comments on Exercise-3 (Net cash provided/used by financing activities)
  1. Sros Thong

    This is the most helpful and valuable website for accounting both costing and financial. Thank you very much.

  2. FEI

    Exercise-3 (Net cash provided/used by financing activities)
    3a. Note receivable collected: $50,000
    if the note is a long-term liability, the collection should be a cash inflow provided by financing activity.

    1. Accounting For Management

      It is a note receivable able, not a note payable. Therefore, it is an asset not a liability. The proceeds collected from issuing a note payable is a financing activity whereas proceeds collected from a note receivable is an investing activity.

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