Chapter 22: Statement of Cash Flows

Is this a cash inflow or cash outflow: bond issuance?

cash inflow

Is this a cash inflow or cash outflow: paid dividends?

cash outflow

When used in the context of a firm’s statement of cash flows, to what does the term “financing activities”?

The term refers to transactions involving liability and owners’ equity items, including obtaining cash from creditors for non-operating loans, repaying non-operating amounts borrowed from creditors, obtaining capital from owners, and providing creditors with a return on their investment.

What effect will this have in the statement of cash flows: an adjustment for a loss on the sale of a warehouse?

an increase in a firm’s net cash flow from operating activities.

What effect will this have in the statement of cash flows: sale of land

increase in investing activities

What effect will this have in the statement of cash flows: purchase of equipment

decrease in investing activities

What effect will this have in the statement of cash flows: purchase of available for sale debt securities?

decrease in investing activities

cash dividends paid are a part of investing activities. true or false?

false. it is a financing activity because it is a return on the stockholders’ investment.

What effect will this have in the statement of cash flows: cash received from the sale of goods or services?

cash inflow from operating activities

What effect will this have in the statement of cash flows: cash paid to for inventory?

cash outflow from operating activities

What effect will this have in the statement of cash flows: cash paid to employees for wages?

cash outflows - operating activities

What effect will this have in the statement of cash flows: cash paid to the government for taxes?

cash outflow - operating activities

What effect will this have in the statement of cash flows: cash received from interest and dividends?

cash inflow - operating activities

What effect will this have in the statement of cash flows: cash paid to lenders for interest?

cash outflow - operating activities

What effect will this have in the statement of cash flows: collection of principal on loans to other entities?

investing activities - generally a long term asset

What effect will this have in the statement of cash flows: to make loans to other equities?

investing activities - generally long term assets

What effect will this have in the statement of cash flows: sale of equity securities?

financing - generally long term liability and equity items - cash inflow

What effect will this have in the statement of cash flows: to stockholders as dividends

financing - cash outflows

What effect will this have in the statement of cash flows: to redeem long-term debt or reacquire capital stock?

cash outflows - financing activities

where do you record this: issue stock?(or bonds or lease) in exchange for property

there are investing or financing activities per se, but are not recorded in statement of cash flows because they don’t involve cash directly. prepare a separate schedule at the bottom of SCF or in notes (if material).

what are cash equivalents and how do they relate to the statement of cash flows?

cash equivalents are short-term highly liquid investments that mature within 3 months or less. includes commercial paper, money market funds, and U.S. treasury bills. Ex: buying a 3-month treasury bill is not included in the SCF because it is a conversion between cash and cash equivalents.

How does this item affect the statement of cash flows: Purchase of land and building

cash payment in investing section

How does this item affect the statement of cash flows: decrease in accounts receivable

added to net income in the operating section

How does this item affect the statement of cash flows: issuance of stock

cash receipt in financing section

How does this item affect the statement of cash flows: depreciation expense

added to net income in the operating section

How does this item affect the statement of cash flows: sale of land at book value

cash receipt in investing section

How does this item affect the statement of cash flows: sale of land at a gain

cash receipt in investing section (sale of land); deducted from net income in the operating section (gain)

How does this item affect the statement of cash flows: payment of dividends

Cash payment in financing section

How does this item affect the statement of cash flows: increase in accounts receivable

deducted from net income in the operating section

How does this item affect the statement of cash flows: purchase of available-for-sale debt investment

cash payment in investing section

How does this item affect the statement of cash flows: increase in accounts payable

added to net income in the operating section

How does this item affect the statement of cash flows: decrease in accounts payable

deducted from net income in the operating section

How does this item affect the statement of cash flows: loan from bank by signing note

cash receipt in financing section

How does this item affect the statement of cash flows: purchase of equipment using note

noncash investing and financing activity

How does this item affect the statement of cash flows: increase in inventory

deducted from net income in the operating section

How does this item affect the statement of cash flows: issuance of bonds

cash receipt in financing section

How does this item affect the statement of cash flows: redemption of bonds payable

cash payment in financing section

How does this item affect the statement of cash flows: sale of equipment at a loss

cash receipt in investing section (sale of equipment); added to net income in the operating section (loss)

How does this item affect the statement of cash flows: purchase of treasury stock

cash payment in financing section

Is this a financing, operating, or investing activity: the purchase of 25% interest in the stock of a supplier.

investing activities

Is this an operating, financing, or investing activity: interest paid on long-term debt.

operating

issuing a note payable would be considered what type of activity?

financing activity