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20 July, 22:35

Statement of cash flows

On January 1, 2013, Palmetto, a fast-food company, had a balance in its Cash account of $32,000. During the 2013 accounting period, the company had (1) net cash inflow from operating activities of $15,600, (2) net cash outflow for investing activities of $23,000, and (3) net cash outflow from financing activities of $4,500.

Required

a. Prepare a statement of cash flows.

b. Provide a reasonable explanation as to what may have caused the net cash inflow from operating activities.

c. Provide a reasonable explanation as to what may have caused the net cash outflow from investing activities.

d. Provide a reasonable explanation as to what may have caused the net cash outflow from financing activities.

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Answers (1)
  1. 21 July, 01:40
    0
    a.

    Palmetto Statement of Cashflows

    For the Year Ended December 31, 2013

    Cashflow from Operating Activities

    Net Cashflow from Operaing Activities $15,600

    Cashflow from Investing Activities

    Net Cashflow from Investing Activities ($23,000)

    Cashflow from Financing Activities

    Net Cashflow from Financing Activities ($4,500)

    Net Increase (Decrease) ($11,900)

    Add: Beginning of Period Cash balance $32,000

    Ending Cash Balance $20,100

    b. Operating Cash flow relates to the normal business operations of the business. A Net Cash Inflow from this therefore means that the business made a profit from its normal operations of selling fast food during 2013.

    c. Investing Activities relate to transaction involving Fixed Assets as well as the stocks and bonds of other companies. The Net Cash flow was probably caused by Palmetto buying more Fixed Assets than they disposed of in the year 2013.

    d. Financing activities relate to how the business is financed in terms of Equity and debt. The payments of Dividends therefore fall under here as they relate to Equity. A net cash outflow here therefore probably means that Palmetto paid out dividends to shareholders. They might have also repaid some loans but judging by how small the outflow is, the loans were either small or it was only dividends that were paid out.
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