Asked by Maurice Edwards on Jun 11, 2024
Verified
State the section (s) of the statement of cash flows prepared by the indirect method (operating activities, investing activities, financing activities, or not reported) and the amount that would be reported for each of the following transactions:?
(a)Received $120,000 from the sale of land costing $70,000.
(b)Purchased investments for $75,000.
(c)Declared $35,000 cash dividends on stock. $5,000 dividends were payable at the beginning of the year, and $6,000 were payable at the end of the year.
(d)Acquired equipment for $64,000 cash.
(e)Declared and issued 100 shares of $20 par common stock as a stock dividend, when the market price of the stock was $32 a share.
(f)Recognized depreciation for the year, $37,000.
(g)Issued 85,000 shares of $10 par common stock for $25 a share, receiving cash.
(h)Issued $500,000 of 20-year, 10% bonds payable at 99.
(i)Borrowed $43,000 from Regional Bank, issuing a five-year, 8% note for that amount.
Statement of Cash Flows
A financial report that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking down the analysis to operating, investing, and financing activities.
Operating Activities
Activities directly related to the primary operations of a business, including production, sales, and distribution, which are reflected in its cash flow.
Indirect Method
A way of preparing the cash flow statement where net income is adjusted for changes in balance sheet items to arrive at cash flow from operating activities.
- Build the cash flow statement following the indirect method.
- Discern and group tasks related to operating, investing, and financing functions.
- Examine the implications of property, plant, and equipment transactions on the statement of cash flows.
Verified Answer
(b)Investing activities, ($75,000)
(c)Financing activities, ($34,000)Cash Payment of Dividends = Dividends Payable at Beginning of Year + Dividends Declared during Year - Dividends Payable at End of Year = $5,000 + $35,000 - $6,000 = $34,000
(d)Investing activities, ($64,000)
(e)Not reported
(f)Operating activities, $37,000 (addition to net income in determining cash flows from operating activities)
(g)Financing activities, $2,125,000Cash from Financing Activity = Number of Shares Issued × Issue Price per Share = 85,000 × $25 = $2,125,000
(h)Financing activities, $495,000Cash from Financing Activities = $500,000 × (99 / 100) = $495,000
(i)Financing activities, $43,000
Learning Objectives
- Build the cash flow statement following the indirect method.
- Discern and group tasks related to operating, investing, and financing functions.
- Examine the implications of property, plant, and equipment transactions on the statement of cash flows.
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