Arrow Printers paid $2,000 interest on short-term notes payable, $10,000 interest on long-term bonds, and $6,000 in dividends on its common stock. Arrow would report cash outflows from activities, as follows:
A) Operating, $2,000; financing, $16,000.
B) Operating, $0; financing, $18,000.
C) Operating, $12,000; financing, $6,000.
D) Operating, $18,000; financing, $0.

Question

Quizplus · Accepted Answer

Interest expenses and dividend payments are typically classified as financing activities in the statement of cash flows. Therefore, the $2,000 interest on short-term notes payable and the $10,000 interest on long-term bonds would be reported as financing outflows, totaling $12,000. And the $6,000 payment in dividends on common stock would also be reported as a financing outflow. Therefore, the total cash outflows reported in the financing section of the statement of cash flows would be $18,000. There would be no cash outflows reported in the operating section since these expenses are non-cash and non-operating.

Arrow Printers Paid $2,000 Interest on Short-Term Notes Payable, $10,000