Any given transaction may affect a statement of cash flows (using the indirect m

Question

Any given transaction may affect a statement of cash flows (using the indirect method) in one or more of the following ways: Cash flows from operating activities

a. Net income will be increased or adjusted upward.

b. Net income will be decreased or adjusted downward. Cash flows from investing activities

c. Increase as a result of cash inflows.

d. Decrease as a result of cash outflows. Cash flows from financing activities

e. Increase as a result of cash inflows.

f. Decrease as a result of cash outflows. The statement of cash flows is not affected

g. Not required to be reported in the body of the statement.

For each transaction listed below, list the letter or letters from above that describe(s) the effect of the transaction on a statement of cash flows for the year ending December 31, 2015. (Ignore any income tax effects.)

1. Preferred stock with a carrying value of $44,000 was redeemed for $50,000 on January 1, 2015.

2. Uncollectible accounts receivable of $3,000 were written off against the allowance for doubtful accounts balance of $12,200 on December 31, 2015.

3. Machinery which originally cost $3,000 and has a book value of $1,800 is sold for $1,400 on December 31, 2015.

4. Land is acquired through the issuance of bonds payable on July 1, 2015.

5. 1,000 shares of stock, stated value $10 per share, are issued for $25 per share in 2015.

6. An appropriation of retained earnings for treasury stock of $35,000 is established in 2015.

7. A cash dividend of $8,000 is paid on December 31, 2015.

8. The portfolio of long-term investments (available-for-sale) is at an aggregate market value higher than aggregate cost at December 31, 2015. please match each transactions 1-8 with statement above a-g

Explanation / Answer

1. Preferred stock redemption is a finiancing activity with outflow of cash . So statement d is appliacble.

2. Uncollectible AR write off from Alloance account does not change the net AR balance , so not effect the cash flow and not reported in cash flow statement. Statment g. is applicable.

3. Loss from sale of assets causes net income to reduce and it is investing activity related cash flow. Statement b. is applicable.

4. Land purchase against bond issue results in cash outflow for land and inflow against financing activities. So statement f is applicable as net cash flow not impacted.

5. The cash flow will increase as stock issued. Statement e is applicable.

6. An appropriation of retained earning for treasury stock does not affect cash flow and not reported in the statement. Statment g is applicable.

7. Cash dividend paid in cash outflow for financing activities. Statement d is appliacble.

8.No cash flow involved in the appreciation of long term investment , so not applicable for cash flow. Statement g is applicable.

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