Exercise-2: Net cash provided/used by investing activities

Learning objective:
This exercise illustrates the computation of cash provided (or used) by investing activities and its reporting on the statement of cash flows.

Exercise-2(a):

Big and Fast Company provides the following information about its activities during the year 2023:

• Marketable securities purchased: $45,000
• Treasury stock purchased: $56,000
• Inventory purchased: $412,000
• Land sold: $95,000
• Machinery purchased: $278,000
• Common stock issued: $168,000

Required: Compute the net cash provided (or used) by investing activities to be reported in the statement of cash flows of Big and Fast Company.

Solution:

Note: The following activities have not been included in the above computation because they are not investing activities.

1. Purchase of treasury stock – a financing activity.
2. Purchase of inventory – an operating activity.
3. Issuance of common stock – a financing activity.

Exercise-2(b):

P&G Company provides the following information for the year 2024:

1. Old plant asset sold for $164,000; the gain on sale was of $5,000
2. Treasury stock purchased for $42,000
3. Investment purchased for $25,000
4. A new plant asset purchased for $115,000
5. Common stock issued for $375,000

Required: Compute the net cash provided (or used) by investing activities for P&G using the above information.

Solution:

Notes:

1. Proceeds from sale of old plant asset includes a gain of $5,000.
2. The purchase of treasury stock and the issuance of common stock have been ignored because they are not investing activities.