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Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:

a. Operating, $2,000; Financing $16,000.
b. Operating, $0; Financing $18,000.
c. Operating, $12,000; Financing $6,000.
d. Operating, $18,000; Financing $0.

Required:
What was shown as an operating cash flow under the direct method?

Respuesta :

Zviko

Answer:

c. Operating, $12,000; Financing $6,000.

Under Direct Method : $12,000

Explanation:

Interest Paid

Interest accrues as a result of Operating Activities of a Firm. Thus bothe the Interest on short-term notes payable and the interest on long-term bond are Cash flows from Operating Activities.

Dividends Paid

Dividends arise as a result of Financing Activities of the Firm, Dividends are the Returns made available to Holders of Stock (in this case the Common Stockholders).

Under Direct Method :

interest on short-term notes payable    $2,000

interest on long-term bonds                 $10,000

Total                                                        $12,000

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