On May 1, Year 1, Arrow Company borrowed $10,000 from the State Bank at 9 percent annual interest. The note issued by Arrow had a one-year term. In addition, Arrow reported cash revenue of $3,400 in Year 1 and $800 in Year 2 from sales. Interest is paid when the note is due.
-The cash flow from operating activities Arrow would report on the Year 1 and Year 2 statements of cash flows would be
A) $2,800 / $500
B) $2,500 / $800
C) $2,800 / $(100)
D) $3,400 / $(100)

Question

On May 1, Year 1, Arrow Company borrowed $10,000 from the State Bank at 9 percent annual interest. The note issued by Arrow had a one-year term. In addition, Arrow reported cash revenue of $3,400 in Year 1 and $800 in Year 2 from sales. Interest is paid when the note is due. 
-The cash flow from operating activities Arrow would report on the Year 1 and Year 2 statements of cash flows would be
A) $2,800 / $500
B) $2,500 / $800
C) $2,800 / $(100)
D) $3,400 / $(100)

Quizplus · Accepted Answer

In Year 1, Arrow would report cash revenue of $3,400 as operating activities. In Year 2, Arrow would pay the interest on the note, which is $10,000 * 9% = $900, and since it only had $800 in revenue, the cash flow from operating activities would be $800 - $900 = $(100).

On May 1, Year 1, Arrow Company Borrowed $10,000 from the State