Interpreting Cash Flow Statement
The following cash flow statement was prepared by the Brainard Music Company for the year ended December 31, 2000:
|
Cash flow from operating activities |
$(346,000) |
|
|
Cash flow from investing activities: |
||
|
Purchase of Music box, Ltd. |
$(280,000) |
|
|
Purchase of property and equipment |
(120,000) |
|
|
Total from investing activities |
(400,000) |
|
|
Cash flow from financing activities: |
||
|
Proceeds from issuance of stock |
130,000 |
|
|
Proceeds from short term bank loans |
540,000 |
|
|
Payment of dividends |
(110,000) |
|
|
Total from financing activities |
560,000 |
|
|
Net decrease in cash |
$(186,000) |
Required
a. Give three reasons why Brainard engaged in these investing and financing activities.
b. Assume that Brainard received dividends from Music box, Ltd. Why aren’t they reported as part of investing activities?
c. Discuss the concept of depreciation as it affects cash flows and as it affects Brainard Music Co.
d. Do you think the future outlook for this company is optimistic? Why or why not?