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    jahubb's Avatar
    jahubb Posts: 27, Reputation: 1
    New Member

    Jan 15, 2008, 04:03 PM
    Statement of Cash Flows
    I'm taking a distance learning course in Accounting, I've read the 2 pages dedicated to the topic of cash flows, I'm really confused and need help. I know the Statement of Cash Flows consists of Operating activities, Investing activities and Finacing activities, but I'm confused as to what figures to use, here is my problem
    Conrad Company reported revenues of $215,000 and net income of $60,000 for 2007.Cash generated by operations was $55,000. In addition, Conrad Company borrowed $36,000 from a bank. During 2007, Conrad bought new equipment for $30,000 cash and paid cash dividends of $20,000 to stockholders. What is the amount of cash flows from investing activities?
    A. $16,000
    B. $55,000
    C. ($30,000)
    D. ($36,000)
    I'm not asking for the answer, just how to figure this out. Please Help me understand!
    crash08's Avatar
    crash08 Posts: 5, Reputation: 1
    New Member

    Jan 15, 2008, 10:40 PM
    Answer is C

    If you are doing a Stmt of cash flow via indirect method (most companies use indirected method) then here is the outline

    *Net Cash from Operating Activities
    Always start with Net Income
    Then there is rules to adjust for non cash items
    (too much to explain right now)

    *Cash Flow from Investing
    Payment for purchase of building
    Payment for investment in bonds
    Receipt from sale of land

    *Cash flow from Financing
    Payment of dividends
    Payment of mortgage
    Receipt from issuance by financing activities.

    Now the reason why the 30,000 is negative is because it's an cash outflow. You bought a new equipment. Therefore you spent money. Money is going out so it's negative.

    Hope that helped

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