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Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions.

-Based on this information alone,what amount of cash flow from operating activities would appear on the Year 2 statement of cash flows?
A)$770 inflow
B)$1,400 inflow
C)$38,520 outflow
D)$1,120 outflow

Question

[The following information applies to the questions displayed below.]

Riley Company borrowed $36,000 on April 1, Year 1 from Titan Bank. The note issued by Riley carried a one-year term and a 7% annual interest rate. Riley earned cash revenues of $1,700 during Year 1 and $1,400 during Year 2. Assume no other transactions.

-Based on this information alone,what amount of cash flow from operating activities would appear on the Year 2 statement of cash flows?
A)$770 inflow
B)$1,400 inflow
C)$38,520 outflow
D)$1,120 outflow

Quizplus · Accepted Answer

Cash paid for interest during Year 2 = $36,000 × 7% = $2,520
Net cash flow from operating activities for year 2 = Inflow from revenue of $1,400 - Outflow for interest of $2,520 = $1,120
The repayment of principal in the amount of $36,000 is a cash outflow from financing activities.

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