Question

During 2015, Shorts Company had the following transactions:

A.	Purchased $200,700 of 10-year bonds issued by Makenzie Inc.
B.	Acquired land valued at $69,200 in exchange for machinery.
C.	Sold equipment with original cost of $539,600 for $330,500; accumulated depreciation taken on the equipment to the point of sale was $179,900.
D.	Purchased new machinery for $120,500.
E.	Purchased common stock in Lemmons Company for $56,000.

	Required:
1.	Prepare the net cash from investing activities section of the statement of cash flows.
2.	CONCEPTUAL CONNECTION Usually, the net cash from investing activities is negative. How can Shorts cover this negative cash flow? What other information would you like to have to make this decision?

Answer 1

• All working forms part of the answer
• Following will not be considered for “Net cash flows from Investing activities section”:

1. Purchase of Bonds for $200,700 because they form part of “Financing Activities”
2. Land acquired for $69200 in exchange for machinery as this does not involve any flow of Cash.

• Requirement 1: Cash Flows from Investing Activities Section

Cash Outflows or decrease is shown within “()”

Sale proceeds from Sale of Equipment	$                    3,30,500.00
Purchase of machinery	$                  (1,20,500.00)
Purchase of common stock in Lemmons Company	$                      (56,000.00)
Net Cash Flows from Investing Activities	$                    1,54,000.00

• Requirement 2:

To cover up the negative Investing activities cash flows, the company can:

---Sell some of its Assets or Investments.
---Issue common shares
---Issue Notes payable/Bonds payable.

Other information required would include:

---Availability of cash balance.
--Assets or Investments at disposal.
---Authorised no. of shares.
---Weightage of Liabilities.