Avatar Company uses the indirect method to prepare its statement of cash flows. The treasury stock account had a debit balance of $5,000 at the beginning of the year, and a debit balance of $8,000 at the end of the year. No treasury stock was sold during the year.
The financing section of the statement of cash flows will show a negative cash flow of $3,000 for purchases of treasury stock.

Question

Quizplus · Accepted Answer

The increase in the treasury stock account from $5,000 to $8,000 (a $3,000 increase) indicates the company spent $3,000 to buy back its own shares. Since no treasury stock was sold, this outflow of cash for purchasing treasury stock is shown as a negative cash flow of $3,000 in the financing section of the statement of cash flows.

Avatar Company Uses the Indirect Method to Prepare Its Statement