Dristell Inc. had the following activities during the year (all transactions are for cash unless stated otherwise):
A building with a book value of $400,000 was sold for $500,000.
Additional common stock was issued for $160,000.
Dristell purchased its own common stock as treasury stock at a cost of $75,000.
Land was acquired by issuing a 6%, 10-year, $750,000 note payable to the seller.
A dividend of $40,000 was paid to shareholders.
An investment in Fleet Corp.’s common stock was made for $120,000.
New equipment was purchased for $65,000.
A $90,000 note payable issued three years ago was paid in full.
A loan for $100,000 was made to one of Dristell’s suppliers. The supplier plans to repay Dristell this amount plus 10% interest within 18 months.
Calculate net cash flows from investing activities.
*Investing activities are things like sale of land, property, long term assets however, I'm not too sure how the acquisition of land with notes payable affects the cash flow.
Net cash flows from investing activities = -$400,000 + $75,000 + $120,000 + $65,000 - $90,000 - $100,000 = -$250,000
To calculate the net cash flows from investing activities, we will consider all cash inflows and outflows related to investments made by Dristell Inc. during the year. Here are the steps to calculate the net cash flows from investing activities:
1. Start with the cash inflows:
- Sale of building: $500,000
2. Add the cash outflows:
- Purchase of treasury stock: $75,000
- Purchase of equipment: $65,000
3. Calculate the net cash flows from purchases or sales of long-term assets:
- Net cash flows from purchases/sales of long-term assets = Cash inflows - Cash outflows
In this case, net cash flows from purchases/sales of long-term assets = $500,000 - ($75,000 + $65,000)
Net cash flows from purchases/sales of long-term assets = $500,000 - $140,000
Net cash flows from purchases/sales of long-term assets = $360,000
4. Consider the acquisition of land using a note payable:
- Since the land was acquired by issuing a note payable, it does not involve any cash outflow or inflow at the time of the transaction. Therefore, it does not affect the net cash flows from investing activities.
5. Calculate the net cash flows from investing activities:
- Net cash flows from investing activities = Net cash flows from purchases/sales of long-term assets
- In this case, Net cash flows from investing activities = $360,000
So, the net cash flows from investing activities for Dristell Inc. during the year are $360,000.
To calculate the net cash flows from investing activities, you need to examine the transactions related to investments in long-term assets. Let's break down the given activities and determine their impact on cash flows:
1. Sale of building: The sale of the building for $500,000 is considered a cash inflow from investing activities.
2. Issuance of additional common stock: The issuance of additional common stock for $160,000 does not fall under investing activities, but rather financing activities. Therefore, it does not affect the net cash flows from investing activities.
3. Purchase of treasury stock: The purchase of treasury stock at a cost of $75,000 is also not an investing activity, but rather a financing activity. Hence, it does not impact the net cash flows from investing activities.
4. Acquisition of land using a note payable: When land is acquired by issuing a note payable, it does not involve any cash outflow or inflow at the time of the transaction. Therefore, the acquisition of land using a note payable does not directly affect net cash flows from investing activities.
5. Payment of dividend: The payment of dividends is a cash outflow from financing activities, not investing activities. Therefore, it does not impact the net cash flows from investing activities.
6. Investment in Fleet Corp.'s common stock: The investment in Fleet Corp.'s common stock for $120,000 is considered a cash outflow from investing activities.
7. Purchase of new equipment: The purchase of new equipment for $65,000 is also a cash outflow from investing activities.
8. Repayment of the $90,000 note payable: The repayment of a note payable is a cash outflow from financing activities, not investing activities. As such, it does not affect the net cash flows from investing activities.
9. Loan made to supplier: The loan made to the supplier for $100,000 is considered a cash outflow from financing activities since it represents the provision of a loan. It does not impact the net cash flows from investing activities.
After considering all the activities, the net cash flows from investing activities can be calculated as follows:
Net cash flows from investing activities = Cash inflows - Cash outflows
= $500,000 (cash inflow from the sale of the building) - $120,000 (cash outflow for the investment in Fleet Corp.'s stock) - $65,000 (cash outflow for the purchase of new equipment)
Therefore, the net cash flows from investing activities would be $315,000.