Financial Reporting and Analysis 【Reading 27】Sample purchase, Jackson, equipment, 2012

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If Jackson Ski Company issues common stock, and uses the proceeds to purchase fixed assets such as equipment:

A) both cash flow from operations and cash flow from financing would increase.

B) cash flow from financing would decrease and cash flow from investing would increase.

C) cash flow from financing would increase and cash flow from investing would decrease.

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Cash flow from financing increases when stock is issued, while cash flow from investing decreases when spending for purchases of fixed assets.

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When a U.S. company pays dividends to its stockholders, which type of cash flow does this represent?

A) Financing.

B) Operating.

C) Investing.

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Dividends paid to stockholders are considered cash outlays from financing according to U.S. GAAP.

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Which of the following choices most accurately illustrates an operating liability and which most accurately illustrates a financing liability?

Operating liabilities

Financing liabilities

A) Accounts payable Current portion of long-term debt

B) Short-term note payable Current portion of long-term debt

C) Customer advances Accrued liabilities

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Operating liabilities result from the operations of the firm and consist of operating and trade liabilities such as accounts payable, customer advances, and accrued liabilities. Financing liabilities are a result of prior financing inflows. Financing liabilities (current) include short-term notes payable and the current maturities of long-term debt.

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Which of the following items is least appropriately described as a liability arising from an operating activity for a non-financial company?

A) Cash advances from customers.

B) Trade payables.

C) The current portion of long-term debt.

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The current portion of long-term debt arises from a financing activity. The other items listed arise from operating activities.

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Which of the following items would least likely be included in cash flow from financing?

A) Dividends paid to shareholders.

B) Purchase of treasury stock.

C) Gain on sale of stock of a subsidiary.

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Gains or losses will be found in cash flow from investments.

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Which of the following is NOT a category on the statement of cash flows? Cash flow from:

A) sales.

B) financing.

C) operations.

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There are only three types of cash flows: financing, investing, and operating.

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Which of the following items would NOT be included in cash flow from investing?

A) Proceeds related to acquisitions.

B) Buying or selling a building.

C) Selling stock of the company.

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Selling stock of the company would be a financing cash flow.

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Which of the following is least likely a cash flow in the calculation of cash flow from operations under U.S. GAAP?

A) Interest income.

B) Dividends paid.

C) Dividends received.

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According to SFAS 95, dividends paid are treated as cash flow from financing.

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Which of the following does NOT represent a cash flow relating to operating activity?

A) Cash received from customers.

B) Dividends paid to stockholders.

C) Interest paid to bondholders.

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Dividends paid to stockholders are considered cash flow relating to financing activity. However, U.S. GAAP requires interest paid to bondholders to be considered an operating activity.

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Interest payments, either as part of a coupon payment or to creditors, are considered which type of cash flow under U.S. GAAP?

A) Financing.

B) Investing.

C) Operating.

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Under U.S. GAAP, interest paid is an operating cash flow.