The statement of cash flows for Baldwin Company shows what happens in the Cash a

Question

The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted). Please answer which of the following is true if Baldwin makes plant improvements:

Select: 1 It is a source of cash, and will be shown in the investing section as an addition. It is a use of cash, and will be shown in the financing section as a subtraction. It is a use of cash, and will be shown in the investing section as a subtraction. It is a source of cash and will be shown in the financing section as an addition.

Explanation / Answer

In the situation of Plant improvements by Baldwin,

There will be only cash out flows.

First & Last statements are source of cash.

So, 1st & 4th statements are false statements.

Plant improvement comes under Investing activity.

2nd statement is shown as Financing section.

So, 2nd statement also false statement.

And finally, the 3rd statement is Investing activity as well as out flow statement.

So, Answer is 3rd Statement.

i.e., It is use of cash, and will be shown in the investing section as a subtraction.

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