MINDTAP Assignment 03-Financial Statements, Cash Flow, and Taxes 4. Cash flows C

Question

MINDTAP Assignment 03-Financial Statements, Cash Flow, and Taxes 4. Cash flows Cash Is King for all businesses You can determine a company's cash situation by analyzing the cash flow statement. The cash flow statement aso helps decermine whether the company (1) is generating enough cash from its operations to make new Investments and pay dividends or (2) willl need to generate cash by issuing new debt or selling its assets Which of the fo lowing is true for the statement of cash flows? O It reflects revenues when earned O It refects cash generated and used during the reporting period Three categories of activities (operating, investing, and financing) generate or use the cash flow in a company. In the folowing table, icentify which type of activity is described by each statement Operating Activity Investing Activity Financing Activity Yum Brands distributes dividends to its common stockholders for the first time. Digilnk Printing Co. buys new machinery to ramp up its production capacity Fitzi Chemical Co. earns revenue from its cash receipts from royalties A company records a loss of $70,000 on the sale of its outdated inventory During the last year, Globo-Chem Co. generated $702 milion in cash fow from operating activities and had negative cash flow generated from investing activities (-$384 milion). At the end of the first year, Globo-Chem Co. had $120 milion in cash on its balance sheet, and the firm had $305 milion in cash at the end of the second year, What was the firm's cash flow (CF) due to financing activities in the second year? O $99.75 million 0 -$66.50 million -$133.00 milion O $166.2S million

Explanation / Answer

1. Cahs flow refers to the amount of cash flowed into the organistion and flowed out of the organisation. It records both Inflow and out flow of cash within the time period.So your answer for 1st one will be Point 2 It reflect cash generated and used during the accounting period.

2 1. Dividend paid is part of Financing activities as it related to all the financial transaction impacted in the reporting period

2. 2 SInce purchase of new machinery is an asset it will be a part of investing activity

2.3 Cash recipts from Royalty is part of operating activity

2.4 Loss/ Gain on sale of assets will be part of operating activity always.

3. Calculation for cash flow of financing activity will be :

Cash from the end of 2nd year - Cash in the beginning of 2nd year(i,e cash at end of 1st year)= 305-120 =$ 185 million (Amount of cash in the financial period)

Cash in financial period = Operating Acitivity+Investing+Financing

$185 = 702+(-384)+Financing

$185-702+384=financing

$-133.00 = Financing Activity
Option number 3

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