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Financial Reporting and Analysis Q138

138Lincoln Ltd issued a $20,000 200-day note at 10%, and used the cash to pay for salaries. It also issued long-term debt worth $90,000 at 10% annually and used the cash to purchase equipment for the new office. The combined effect of these transactions is least likely to be:
  • Option : C
  • Explanation : The only investing activity is the purchase of equipment; thus investing activity should increase by $90,000. Financing activity comprises of both short term and long term debt and thus increases by $110,000. Salaries paid is an operating activity, which decreases operating cash flows by $20,000.
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