Question

Smith Law Firm specializes in the preparation of wills for estate planning. On October 1, 2021, the company begins operations by issuing stock for $11,000 and obtaining a loan from a local bank for $32,000. By the end of 2021, the company provides will preparation services of $39,000 cash and pays employee salaries of $30,000. In addition, Smith pays $2,700 in cash dividends to stockholders on December 31, 2021.

Determine the amount of financing cash flows Smith would report in 2021. (Amounts to be deducted should be indicated with a minus sign.)
issuance of stock

borrowing from bank

preperation services

emplyee salaries

payment of dividends

total finacing cash flow

Answer 1

Solution:

Total Financing Cash Flows = $ 40,300

Working:

Cash flow from financing activities for 2021:
Issuance of stock	$       11,000
Borrowing from bank	$       32,000
Payment of dividends	$       (2,700)
Amount of Financing Cash Flows	$ 40,300

Notes:

1) Preparation services revenue of $39,000 cash and pays employee salaries of $30,000 expense are not considered in calculation of finance cash flow, there are considered in operating activity.