CFA Practice Question

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CFA Practice Question

Oak Inc. conducted the following activities during 2016:

Sold an investment in Mackey Motors for $35,000 (carrying amount of $ 33,000)
Collected dividends of $1,200 on stock investments
Acquired 2000 shares of stock in Fleming Co. for $26,000
Purchased a $50,000, five-year bank certificate of deposit. Received $3,750 in interest from the bank.

What amount should be reported as "Net Cash Flows Used by Investing Activities" in Oak's 2016 Statement of Cash Flows?

A. $37,250
B. $39,800
C. $41,000
Correct Answer: C

This consists of $35,000 from the sale of investments less $26,000 for the purchase of Fleming stock and $50,000 for the purchase of the bank CD.

User Contributed Comments 16

User Comment
Skibird1 Collected dividends and interest = CFO
Beret This answer is only true under US GAAP. IFRS would allow the received dividends and interest to be classified as investing activities as well
jike Yes for the exam you should assume US GAAP by default or any question would need to specify "under US GAAP" or "under IFRS" ...
AndyBear Does anyone know if there is likely to be mult-step problems dealing with the indirect, direct, and conversion from indirect to direct? I am performing well on this review but am having difficulty completely the entire examples of Bismark Company and Selton detailed in the notes section. Thanks
Warrior23 Could someone please explain how they arrived at $41,000? Thanks
hocj $35,000-$26,000-$50,000 = -$41,000
nayagan this is a good question. too bad i got it wrong
CFunder I think you are supposed to assume IFRS by default..this was changed in 2009.
shiva5555 The test will tell you which to assume.
Ifi2703 The clue is in the question - the reference to cash flows 'USED' suggests cash outflows (USED = money spent). So that means we are spending cash to pay for something. The dividends received can be ignored (this relates to CFO) and the $3750 interest rcvd can also be ignored.
This means, we've received $35k, but spent $26k and $50k, leaving a cash outflow of $41k (net). So that's an easy/intuitive way to get to the answer.
bidisha yea but ifi, if its "used" then why to include the 35K which refers to cash received not cash used
KittyC what is a "carrying amount"?
vatsal92 Carrying amount is the book value.
choas69 carrying amount is the amount carried to the balance sheet which is book value.

1- sold investment (inflaw), carrying amount (ignored)
2- colect dividend (CFF -> ignored)
3- aqcuired shares (outflaw)
4- purchased certificates (otflaw), received interest (CFF -> ignored)

Thus -41k
fredpat01 Under US GAAP, dividends and interest received are CFO no?
MathLoser I don't want to "asume" IFRS or US GAAP in the exam.
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