Question

Financial statements for Larned Company appear below:

Larned Company
Balance Sheet
December 31, 20X6 and 20X5
(dollars in thousands)

	20X6	20X5
Current assets:
Cash and marketable securities	$130	$100
Accounts receivable, net	150	130
Inventory	100	100
Prepaid expenses	20	20
Total current assets	400	350
Noncurrent assets:	1,640	1,600
Plant & equipment, net
Total assets	$2,040	$1,950

	20X6	20X5
Current liabilities:
Accounts payable	$290	$280
Accrued liabilities	110	80
Total current liabilities	400	360
Stockholders' equity:
Preferred stock, $20 par, 10%	120	120
Common stock, $10 par	660	690
Retained earnings	860	780
Total stockholders' equity	1,640	1,590
Total liabilities & stockholders' equity	$2,040	$1,950

Larned Company
Income Statement
For the Year Ended December 31, 20X6
(dollars in thousands)

Sales (all on account)	Sales (all on account)
Cost of goods sold	2,050
Gross margin	880
Operating expenses	350

Net operating income	530
Interest expense	40
Net income before taxes	490
Income taxes (30%)	147
Net income	$343

Dividends during 20X6 totalled $263 thousand, of which $12 thousand were preferred dividends.
The market price of a share of common stock on December 31, 20X6 was $160.
Included in operating expenses was depreciation expense of $20,000.
No non-current assets were sold.

1. Cash flow from operating activities was?
A. $343,000
B. $353,000
C. $383,000
D. $393,000

2. Cash flow from financing activities was?
A. $(293,000)
B. $(30,000)
C. $(20,000)
D. $10,000

3. Cash flow from investing activities was?
A. $0
B. $(20,000)
C. $(40,000)
D. $(60,000)

SHOW YOUR WORK / CALCULATIONS

Answer 1

1. Cash flow from operating activities:

Net income	$343
Adjustments to reconcile net income
Depreciation expense	20
Accounts receivable	-20
Accounts payable	10
Accrued liabilities	30
Net cash flow from operating activities	$383

Cash flow from operating activities is $383,000

Hence option C is correct.

2. Cash flow from financing activities:

Repurchase of common stock	$(30)
Dividend paid	(263)
Net cash flow from financing activities	$(293)

Cash flow from financing activities is $(293,000)

3. Cash flow from investing activities :

Purchase of plant & equipment	$(40)
Net cash flow from investing activities	$(40)

Cash flow from investing activities is $(40,000)

Hence option C is correct.