Question

When preparing the Statement of Cash Flow using the indirect method for the current year, which of the following statements would describe the proper presentation of a increase in the Common Stock account of $150,000 and an increase in the Paid-In Capital in Excess Par Common Stock of $25,000 for which cash of $175,000 was received for the issuance of additional common stock.

Add the $175,000 as Cash received from the issuance of common stock in the Cash flow from Investing Activities section of the Statement of Cash Flow.

Less the $175,000 as Cash paid for the issuance of common stock in the Cash flow from Investing Activities section of the Statement of Cash Flow.

Add the $175,000 as Cash received from the issuance of common stock in the Cash flow from Financing Activities section of the Statement of Cash Flow.

Less the $175,000 as Cash paid for the issuance of common stock in the Cash flow from Financing Activities section of the Statement of Cash Flow.

Answer 1

The right answer is option (c)

Add the $175,000 as Cash received from the issuance of common stock in the Cash flow from Financing Activities section of the Statement of Cash Flow.

Explanation: Increase in common stock and paid in capital in excess of par means there is an inflow of cash into the organisation. Here we are raising the funds by way of issuing common stock and it is the one of the ways of financing the organisation to run it activities smoothly. Therefore, issuing the common stock will be considered as financing activity. Hence, the right answer is option (c)