Suppose Zenon Co. issued a long-term bond and received $250,000 cash from the is

Question

Suppose Zenon Co. issued a long-term bond and received $250,000 cash from the issuance during 2015. The company also issued 12,000 shares of common stock for $260,000. At the end of the year, Zenon paid $165,000 for the dividend declared last year. What would be the net impact of these transactions on Zenon's 2015 statement of cash flows under US GAAP?

a) $510,000 would be shown as an increase in the Financing Section and the $165,000 would be shown as a decrease in the Operating Section.

b) $260,000 would be shown as an increase in the Financing Section and the $250,000 would be shown as an increase in the Investing Section.

c) $345,000 would be shown as an increase in the Financing Section.

d) $260,000 would be shown as an increase in the Financing Section, the $250,000 would be shown as an increase in the Investing Section, and the $165,000 would be shown as a decrease in the Operating Section.

Explanation / Answer

Answer

The net impact of these transactions on Zenon's 2015 statement of cash flows under US GAAP will be :

c)  $345,000 would be shown as an increase in the Financing Section.

Explanation : Under US GAAP issue of long-term bond , issue of common stock & payment of dividend are all condider as Financial activities. Where long-term bond & issue of common stock are Cash inflow from financial operations & dividend paid is regarded as Cash outflow from financial operations .

Therefore the net impact in Cash flow statement ( Cash flow financial activities ) will be:

$250,000 + $260,000 + $165,000 =  $345,000

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