Question

The following summarized Cash T-account reflects the total debits and total credits to the Cash account of Thomas Corporation for calendar-year 2017.

1. Use this information to prepare a complete statement of cash flows for year 2017. The cash provided or used by operating activities should be reported using the direct method.
2. Refer to the statement of cash flows prepared for part 1 to answer the following questions a through d: (a) Which section—operating, investing, or financing—shows the largest cash (i) inflow and (ii) outflow? (b) What is the largest individual item among the investing cash outflows? (c) Are the cash proceeds larger from issuing notes or issuing stock? (d) Does the company have a net cash inflow or outflow from borrowing activities?

CASH
Balance, Dec 31, 2016	333,000	Payments for inventory	2,590,000
Receipts from customers	5,000,000	Payments for wages	550,000
Receipts from dividends	208,400	Payments for rent	320,000
Receipts from land sale	220,000	Payments for interest	218,000
Receipts from machinery sale	710,000	Payments for taxes	450,000
Receipts from issuing stock	1,540,000	Payments for machinery	2,236,000
Receipts from borrowing	3,600,000	Payments for long-term investments	1,260,000
		Payments for note payable	386,000
		Payments for dividends	500,000
		Payments for treasury stock	218,000
Balance, Dec 31, 2017	$….?

Short answer

1. Balance on 31 Dec, 2017 is$2,883,400.
2. (a) Highest cash flow is reported by financing activity.

(b) The largest amount reported in investing activity is the payment made for machinery.

(c) Cash receipts from the issue of notes payable are larger than receipts from an issue of common stock.

(d) The business entity generates net cash inflow from borrowings.

Step-by-step solution

Definition of Investing Activities

Investing activities include all those transactions that involve the acquisition and sale of assets against cash consideration. It only includes a transaction of fixed assets.

Statement of cash flow

Particular	Amount ($)	Amount ($)
Cash flow from operating activities:
Receipts from customer	$5,000,000
Payments for inventory	(2,590,000)
Payments for wages	(550,000)
Payments for rent	(320,000)
Payments for taxes	(450,000)	1,090,000
Cash flow from investing activities:
Receipts from land sale	$220,000
Receipts from the sale of machinery	710,000
Receipts from dividends	208,400
Payment for machinery	(2,236,000)
Payment for long-term investment	(1,260,000)	($2,357,600)
Cash flow from financing activities:
Receipts from issuing stock	1,540,000
Receipts from borrowing	3,600,000
Payment for interest	(218,000)
Payment for note payable	(386,000)
Payment for dividend	(500,000)
Payment for treasury stock	(218,000)	$3,818,000
Net changes in cash		$2,550,400
Add: Balance, 31 Dec 2016		333,000
Balance, 31 Dec 2017		$2,883,400

Analysis of cash flow statement

1. Financing activity section reports the largest cash inflow, while the largest cash outflow is reported by investing activity section.
2. Largest individual item among the investing activity is payment for the machinery of $2,236,000.
3. Cash proceeds from the issue of notes payable are higher than the issue of common stock.
4. Net cash flow from borrowing:

Particular	Amount ($)
Receipts from borrowing	$3,600,000
Less: payment of interest	(218,000)
Less: payment for note payable	(386,000)
Net cash inflow	$2,996,000