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Cash Flows

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A building with a book value of $ 45,000 is sold for $50,000 cash Using the indirect method, this transaction should be shown on the statement of cash flows as follows: ________.
an increase of $45,000 from investing activities
an increase of $50,000 from investing activities and a deduction from net income of $5,000
an increase of $50,000 from investing activities
an increase of $45,000 from investing activities and an addition to net income of $5,000

Cash dividends of $80,000 were declared during the year. Cash dividends payable were $10,000 and $15,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is _______.
$85,000
$80,000
$95,000
$75,000

Solution This solution is FREE courtesy of BrainMass!

1. The book value is 45,000 and is sold for 50,000 cash. There is a gain of $5,000 on sale of building. This gain is shown as a deduction from net income under operating activity. It is shown as a deduction since in the income statement, this gain would have increased the net income and so it is deducted in the statement of cash flows. The gain has a nature of non cash entry and so is reduced from the net income.
The cash of $50,000 received is an inflow of cash and is an investing activity inflow since it relates to fixed assets

an increase of $50,000 from investing activities and a deduction from net income of $5,000

2. Dividends payable implies that dividends have been declared but have not been paid. The opening dividends payable is $10,000. New dividends of $80,000 are declared. If these are also not paid then it will add to dividends payable. The total dividends payable should be 10,000+80,000=$90,000. The actual dividends payable is 15,000. This implies that some dividends are paid. The amount of cash for dividends paid is 90,000-15,000=$75,000