Allen Company uses the indirect method to prepare its statement of cash flows. The Treasury Stock account had a debit balance of $9,000 at the beginning of the year, and a debit balance of $13,000 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 positive cash flow of $4,000 for the buyback of Treasury Stock.

Question

Quizplus · Accepted Answer

The increase in the debit balance of the Treasury Stock account indicates that Allen Company bought back its own shares, which is a financing activity that uses cash. Therefore, the financing section of the statement of cash flows will show a negative cash flow of $4,000 for the buyback of Treasury Stock, not a positive cash flow.

Allen Company Uses the Indirect Method to Prepare Its Statement