[Anonymous]

Polk Co. acquires a forklift from Quest Co. for $30,000. The terms require Polk to pay $3,000 down and finance the remaining $27,000. On March 1, Year 1, Polk pays the $3,000 down and accepted delivery of the forklift. Polk signed a note that requires Polk to pay principal payments of $1,000 per month for 27 months beginning July 1, Year 1. What amount should Polk report as an investing activity in the statement of cash flows for the year ended December 31, Year 1?

A.

$3,000

B.

$9,000

C.

$12,000

D.

$30,000

Greetings All. Ninja MCQ is showing a correct answer of A. Could it be erroneous?

If you purchased the forklift for $30,000 in which you paid 3,000 and financed the balance of 27,000, wouldn’t the presentation of your CF be as follows? Assume the Company only had assets of $3,000 (cash) and used it for the down payment.

Investing Activities –

Additions to fixed assets $(30,000)

Financing Activities

Proceeds from note payable $27,000

Net ($3,000)

Beginning cash $3,000

Ending Cash –

Wouldn’t the answer be choice D? Am I off base here? Thanks in advance.

[cpagal]

Answer is A. You only want activities that involve cash.

Investing activities are cash payments to acquire PPE. With the note payable, you didnt receive cash, so it does not affect cash flows at all.

Now, on the other hand, say you issued a bond to another unrelated party. They gave you 27k in cash. Then you paid 30k cash for the forklift.

You would have 30k in investing outflow – purchase of the forklift

You would have 27k in financing inflow – bond

FAR - 08/30/15 - 90
AUD - 11/12/15 - 92
REG - 01/19/16 - 82
BEC - 02/29/16 - 83

Passed all on 1st attempt using GLEIM (full program) and NINJA (MCQ only)!!!

Louisiana Licensed CPA

[Anonymous]

Thanks, cpagal. It just dawned on me that I was crossing up the transaction as if they financed the 27K from an unrelated lender ie a bank.

.

[Author]

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