Avatar Company Uses the Indirect Method to Prepare Its Statement

question 91

Multiple Choice

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } \hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Common stock } & \$ 30,000 & \$ 2,000 & \$ 28,000 \\\hline \text { Retained earnings } & 113,000 & 74,000 & 39,000 \\\hline \text { Treasury stock } & ( 8,000 & ( 5,000 ) & ( 3,000 ) \\\hline \text { Total equity } & \$ 135,000 & \$ 71,000 & \$ 64,000 \\\hline\end{array}$$

Note: There were no stock retirements during the year.
There were no sales of treasury stock during the year.
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Which of the following statements would be TRUE?

• A) There was zero net cash flow from transactions involving common stock.
• B) There was a negative cash flow of $28,000 from the issuance of common stock.
• C) There was a positive cash flow of $28,000 from the issuance of common stock.
• D) There was positive cash flow of $30,000 from issuance of common stock.

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Definitions:

Adjustment

Changes made to the financial records at the end of an accounting period to reflect true and fair values.

Unearned Fees

Income received by an entity for services yet to be provided and is recorded as a liability until the service is rendered.

Net Income

The net income a company earns following the subtraction of all taxes and expenses from its revenues.

Revenues

The entire sum of earnings resulting from the sales of products or services central to a business's primary functions.