Drexon Corp., which follows U.S. GAAP, uses the direct method to report its cash

Question

Drexon Corp., which follows U.S. GAAP, uses the direct method to report its cash flows. The CFO is assessing the impact on cash flows of 4 events during the fiscal year. Specify which category each event falls under (under the direct method) and note whether it increases cash, decreases cash, or has no impact on cash.

(1) 40,000 new shares of stock are issued near the close of the fiscal year.

(2). Drexon purchases 60% of a subsidiary company.

(3). Accounts receivable decreases from $620,000 to $610,000.

(4). Dividends of $12,000 are paid on Drexon company stock.

(1) 40,000 new shares of stock are issued near the close of the fiscal year.

(2). Drexon purchases 60% of a subsidiary company.

(3). Accounts receivable decreases from $620,000 to $610,000.

(4). Dividends of $12,000 are paid on Drexon company stock.

Explanation / Answer

Solution:

1) It increases cash flow in financing activities.

2) It decreases cash flow in financing ctivities.

3) It increases cash flow by 610000.

4) it decreases cash flow by 12000 in financing activities.

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