Question

Luz​ Azul, LLC is a merchandiser of blue light blocking glasses. The company began 2019 with​ $10,000 in cash and reported net income of​ $6,700 on its 2019 income statement. During the year a loss of​ $250 was reported on the cash sale of a piece of equipment with a book value of​ $1,000. A new piece of equipment was purchased at a cost of​ $8,500 to replace the equipment that was sold. The company paid​ $1,500 from its available cash balance to purchase the equipment and took out a cash​ long-term note payable from its bank for the remaining balance. All dividends declared during 2019 were paid in 2019. There was not a balance in the dividends payable account at the beginning of the year. There was a​ $250 net decrease in retained earnings during the year. Given a reported positive cash flow of​ $500 from its operating activities during the​ year, which of the following statements is​ incorrect?

A. The​ company’s net cash flows from financing activities were ​$50.

B. The ending cash reported on the balance sheet was ​$2,800.

C. The company operated within its means during the year.

D. The​ company’s cash decreased by​ $7,200 during the year.

E. The​ company’s investing activities used​ $750 more in cash than they provided

Answer 1

Solution:

Correct Answer is Option E. The​ company’s investing activities used​ $750 more in cash than they provided.

Explanation

Calculaiton of Dividend Paid

Dividend Paid = Net income for the year + net decrease in the retained earning

= $6,700 + $250

= $6,950