Question

You (USA dealer) contributed $50,000 to start a car trading company on Jan 1, 2018. Let’s suppose you (USA dealer) imported 10 Mercedes from a German dealer on Dec 1, 2018 at € 70,000 each, payable in 60 days. The exchange rate on Dec 1, 2018 was 1.14 US$/€. Then you sold all of them in the US market at US$87,000 (each BMW) in cash on Dec 29, 2018. The exchange rate on Dec 31, 2018 was 1.11 US$/ €. You (USA dealer) contributed additional $20,000 on Jan 1, 2019. On Jan 31, 2019, you paid to German car dealer at the exchange rate of 1.17 US$/€. You purchased a company car (not for sales) in cash ($25,000) on Dec 31, 2019. (No need to record depreciation.) What was the amount of Operating Activities (in US Dollar) in 2019 Cash Flow?

the answer is -819,000 dollars, why?

Answer 1

To calculate the operating activity cash flow we have to calculate the transaction related to the operations happend with in from 1st Jan 2019 to 31st dec 2019.

The only transaction in relation to operating activity is payment to dealer on 31st jan [email protected] for $70000 multiple on 10 cars i.e=

1.17*70000*10 =. 819000 which will be negative as it has been paid to the creditor.

Amount received entered in by the dealer $20000 shall be of financing activity not operating activity.

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