Message Company Uses the Indirect Method to Prepare Its Statement

question 101

Multiple Choice

Message Company uses the indirect method to prepare its statement of cash flows.Refer to the following portion of the comparative balance sheet: $\begin{array}{c}\text { Message Company}\\\text { Comparative Balance Sheet}\\\text { December 31,2017 and 2016}\\\begin{array}{|l|r|r|r|}\hline&2017 & 2016 & \text { Increase/(Decrease) }\\\hline \text { Common Stock } & \$ 18,000 & \$ 12,400 & \$ 5,600 \\\hline \text { Retained Earnings } & 113,000 & 80,000 & 33,000 \\\hline \text { Treasury Stock } & (8,000) & (5,400) & \underline{(2,600) } \\\hline \text { Total Equity } & \$ 123,000 & \$ 87,000 & \$ 36,000 \\\hline\end{array}\end{array}$ Note:
1.There was no retirement of stock during the year.
2.There were no sales of treasury stock during the year.
Which of the following statements is correct?

• A)There was zero net cash flow from transactions involving Common Stock.
• B)There was a negative cash flow of $5,600 from the issuance of Common Stock.
• C)There was a positive cash flow of $5,600 from the issuance of Common Stock.
• D)There was positive cash flow of $18,000 from issuance of Common Stock.

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Definitions:

Exercise Price

The exercise price is the specified price at which the option holder can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Risk-Free Rate

The rate of return on an investment with no risk of financial loss, typically represented by government bonds.

Inflation Rate

The inflation rate measures the annual percentage increase in the general price level of goods and services in an economy, indicating how quickly prices are rising.

March Put

An options contract which grants the holder the right to sell a specific financial instrument at a predetermined price before or at a specified date in March.