In Bonita Company Treasury Stock increased $20800 from a cash purchase, and Retained Earnings increased $79500 as a result of net income of $120100 and cash dividends paid of $40600. Net cash used by financing activities is: O $40600 O $120100 O $61400. O $19800.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![**Understanding Financing Activities: Bonita Company Case Study**
In this example, we will illustrate how to calculate the net cash used by financing activities for a company. Let's consider the case of Bonita Company for a detailed insight:
*Treasury Stock and Earnings Data:*
- Treasury Stock increased by $208,000 due to a cash purchase.
- Retained Earnings increased by $79,500 as a result of net income amounting to $120,100 and cash dividends paid of $40,600.
*Objective:*
Determine the net cash used by financing activities.
**Data Given:**
1. **Cash Purchase of Treasury Stock:** $208,000
2. **Retained Earnings Changes:**
- Net Income: $120,100
- Cash Dividends Paid: $40,600
**Step-by-Step Calculation:**
1. **Calculate the Cash Used for Treasury Stock:**
- The company spent $208,000 on the purchase of treasury stock.
2. **Calculate the Cash Dividends Paid:**
- The company paid $40,600 in cash dividends.
3. **Summarize the Net Cash Used:**
- Add the cash used for purchasing treasury stock and the cash dividends paid:
\[ \text{Net Cash Used} = \text{Cash Used for Treasury Stock} + \text{Cash Dividends Paid} \]
\[ \text{Net Cash Used} = $208,000 + $40,600 = $248,600 \]
Therefore, the net cash used by financing activities for Bonita Company is **$248,600**.
*Multiple Choice Options:*
- $40600
- $120100
- $61400
- $19800
**Additional Notes:**
- Ensure to correctly categorize financial activities to provide a clear view of the company's cash flow.
- This example helps in understanding how outflows like treasury stocks and dividends impact the overall financing activities of a company.
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*Submit Answer* button: Use this to check your calculated result against the provided options.
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This exercise is essential for students learning to analyze a company's cash flow and financial health.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9ff6323c-cf7e-493a-b269-a8fbd92b416a%2Fb1895c48-78f1-48a5-98f1-b99cc9765478%2Fiymhhbw_processed.jpeg&w=3840&q=75)
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