Question

Using the following information, compute cash flow from investing activities.

                                                                                       Cash Inflow (Outflow)

Cash received from sale of a building                                                $5,600

Cash paid for interest                                                                                (450)

Cash paid to repurchase shares of stock (treasury stock)              (1,000)

Cash collected from customers                                                            10,000

Cash paid for dividends                                                                           (780)

Cash paid for income taxes                                                                 (1,320)

$5,600 $5,150 $4,150 $4,820 $4,600

Answer 1

Solution:

Cash received from sale of a building is an Investing activity. Hence, the cash flow from investing activities is = $ 5,600.

Thus the solution is option 1 = $ 5,600

The other activities cannot be included in the computation for cash flow from investing activities due to the reasons given below:

1.Cash paid for interest = $ (450) ;

In case the company is preparing the Cash Flow Statement as per Indirect Method, It is an operating cash outflow. Hence, should be shown under Operating Activities Section of the cash flow statement.

In case the company is preparing the Cash Flow Statement as per Direct Method, It is a Financing cash outflow. Hence, should be shown under Financing Activities Section of the cash flow statement.

2.Cash paid to repurchase shares of stock (treasury stock) = $ (1,000)

It is a financing cash outflow. Hence, should be shown under Financing Activities Section of the cash flow statement.

3.Cash collected from customers  = $ 10,000

It is an operating cash inflow. Hence, should be shown under Operating Activities Section of the cash flow statement.

4.Cash paid for dividends = $ (780)

It is a financing cash outflow. Hence, should be shown under Financing Activities Section of the cash flow statement.

5. Cash paid for income taxes  = $ (1,320)

It is an operating cash outflow. Hence, should be shown under Operating Activities Section of the cash flow statement.

Thus the solution is option 1 = $ 5,600