- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 4. Analyzing Statements of Cash Flows I
- Subject 4. The Indirect Method
CFA Practice Question
Oak Inc. conducted the following activities during 2016:
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.
B. $39,800
C. $41,000
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. |