Question

During the year ending December 31, 2020, Recapitalize Company paid $ 8,000,000 when the exercised a...

During the year ending December 31, 2020, Recapitalize Company paid $ 8,000,000 when the exercised a call option to retire bonds that currently had a book value of $ 7,800,000. Those were the only bonds thatRecapitalize had outstanding, and a total of $ 400000 of interest had been paid on those bonds during the year before they were retired.
In addition, during the year Recapitalize issued Common Stock, receiving $ 6,000,000 from the issuance. Dividends paid on all common stock, including common stock issued in previous years, totaled $ 950,000.When preparing their Statement of Cash Flows for the year-ending December 31, 2020, whatis the amount of "Cash Provided By (Used by) Financing Activity" for the year-ending December 31, 2020? RecapitalizeCompany prepares financial statements in accordance with US GAAP.

A.Cash Used by Financing Activity $ 2,000,000

B.Cash Used by Financing Activity $ 2,200,000

C.Cash Used by Financing Activity $ 2,600,000

D.Cash Used by Financing Activity $ 2,950,000

E.Cash Used by Financing Activity $ 3,350,000

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Answer #1

Cash Provided By (Used by) Financing Activity  for the year-ending December 31, 2020 is calculated as follows:

$
Issuance of Common Stock 6,000,000
Dividend Paid (950,000)
Retirement of Bond (8,000,000 )
Cash Provided By (Used by) Financing Activity ($2,950,000)

Note: Under the indirect method of cash flow statement interest paid is reported in the section of 'cash from operating activities' and then it will be adjusted to cash account.

So Cash Provided By (Used by) Financing Activity  for the year-ending December 31, 2020 is ($2,950,000)

So correct answer is option (D) or Cash Used by Financing Activity $ 2,950,000

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