A Company Issues $1 Million of New Stock and Pays

question 10

Multiple Choice

A company issues $1 million of new stock and pays $200,000 in cash dividends during the year.In addition,the company took advantage of falling interest rates to borrow $1.5 million in a new bond issue and paid off existing bonds with a face value of $2 million.The company bought 500 of another company's $1,000 bonds at a $100,000 premium.The net cash flow provided by financing activities is:

• A) An inflow of $500,000.
• B) An outflow of $200,000.
• C) An outflow of $100,000.
• D) An inflow of $300,000.

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Definitions:

Available-For-Sale Debt Investments

Financial assets in the form of debt securities that a company intends to hold for a period but are not classified as held-to-maturity or trading securities.

Held-To-Maturity Classification

A financial accounting term for bonds or other debt securities that a firm intends to hold until they mature.

Fair Value Adjustment

An adjustment made to the carrying value of an asset or liability to reflect its value at current market conditions.

Unrealized Gain

A profit that exists on paper resulting from an investment that has increased in value but has not yet been sold for cash.