Avatar Company Uses the Indirect Method to Prepare Its Statement

question 66

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

• A) There was zero net cash flow from transactions involving treasury stock.
• B) There was $3,000 of positive cash flow from transactions involving treasury stock.
• C) There was $3,000 negative cash flow from transactions involving treasury stock.
• D) There was $8,000 negative cash flow from transactions involving treasury stock.

---

Definitions:

Necessary Information

Necessary information refers to data or facts that are essential to complete a task, solve a problem, or make an informed decision.

Certainty

A condition where there is complete absence of doubt or the total confidence in something.

Fully Informed

Indicates a state where all necessary information has been received and understood.

Major Decision Making

The process of choosing between significant options or paths, often having considerable impact on an individual's or organization's future.