A firm purchased $20,000 worth of investments classified as trading securities.At the end of the year,the investments are worth $23,000.What is the correct disclosure of these events in the statement of cash flows prepared under the direct method?

Question

Quizplus · Accepted Answer

The correct disclosure would be an operating cash outflow of $20,000 to show the purchase of the trading securities. Since the value of the securities increased by $3,000, this would need to be subtracted in the reconciliation of earnings and net operating cash flow. Therefore, the correct answer is C, which includes both parts of the disclosure. Option A is incorrect as it only reflects the increase in value and does not account for the initial purchase. Option B is incorrect as it does not indicate whether the $17,000 is an inflow or outflow. Option D is also incorrect as disclosure is required to accurately reflect the company's cash flows.

A Firm Purchased $20,000 Worth of Investments Classified as Trading