Question

Riley Company borrowed $36,000 on April 1, Year 1 from the Titan Bank. The note issued by Riley carried a one year term and a 5% annual interest rate. Riley earned cash revenue of $1020 in Year 1 and $950 in Year 2. Assume no other transactions. The amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows would be:

Answer 1

Answer:

The amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows would be -$850 or $850 outflow

Explanation:

The computation of the cash flow from the operating activities for year 2 is shown below:

= Cash revenue in year 2 - interest on notes payable

= $950 - $1,800

= -$850

The negative amount shows an outflow of cash .

The interest on the note payable is computed by

= Borrowed amount × interest rate

= $36,000 × 5%

= $1,800