1.How would a stock split be reported on the statement of cash flows? A stock split would:

A)   be reported as a use of cash in the cash flows from financing.

B)   be reported as a source of cash in the cash flows from investing.

C)   be reported as a source of cash in the cash flows from financing.

D)   not be reported on the statement of cash flows because it is a non-cash event.

2.For the year ended December 31, 2007, Gremlin Corporation reported the following transactions:

§       Issued 5,000 shares of preferred stock for land with a fair value of $4.8 million.

§       Purchased a patent for $3.3 million cash.

§       Acquired 40 percent of the common stock of an affiliate for $2.7 million cash which was borrowed from a bank.

§       Exchanged equipment with a book value of $1.7 million for equipment valued at $2.1 million. The exchange was an even trade.

§       Converted bonds payable with a book value of $5 million to 50,000 shares of common stock with a fair value of $6 million.

Calculate Gremlin’s cash flow from investing activities and cash flow from financing activities for the year ended December 31, 2007.

A)  $2.7 million outflow                               $6.0 million inflow

B)  $1.7 million inflow                                 $1.3 million outflow

C)  $6.0 million outflow                               $2.7 million inflow

D)  $1.3 million outflow                                $1.7 million inflow

3.Which of the following transactions would least likely be reported in the cash flow statement as investing cash flows?

A)   Purchase of real estate with cash borrowed from a bank.

B)   Sale of held-to-maturity securities for cash.

C)   Purchase of plant and equipment used in the manufacturing process with financing provided by the seller.

D)   Principal payments received from loans made to others.

4.Dart Corporation engaged in the following transactions earlier this year:
Transaction #1 – Retired long-term debenture bonds with a face amount of $10 million by issuing 500,000 shares of common stock to the bondholders.
Transaction #2 – Borrowed $5 million from a bank and used the proceeds to purchase equipment used in the manufacturing process.
Should Dart report Transaction #1 as a financing cash flow and/or report Transaction #2 as an investing cash flow?

A)  No                                       No

B)  Yes                                     Yes

C)  No                                       Yes

D)  Yes                                     No

答案和详解如下：

1.How would a stock split be reported on the statement of cash flows? A stock split would:

A)   be reported as a use of cash in the cash flows from financing.

B)   be reported as a source of cash in the cash flows from investing.

C)   be reported as a source of cash in the cash flows from financing.

D)   not be reported on the statement of cash flows because it is a non-cash event.

The correct answer was D)

No cash is involved in a stock split: shares are exchanged for shares.

2.For the year ended December 31, 2007, Gremlin Corporation reported the following transactions:

§       Issued 5,000 shares of preferred stock for land with a fair value of $4.8 million.

§       Purchased a patent for $3.3 million cash.

§       Acquired 40 percent of the common stock of an affiliate for $2.7 million cash which was borrowed from a bank.

§       Exchanged equipment with a book value of $1.7 million for equipment valued at $2.1 million. The exchange was an even trade.

§       Converted bonds payable with a book value of $5 million to 50,000 shares of common stock with a fair value of $6 million.

Calculate Gremlin’s cash flow from investing activities and cash flow from financing activities for the year ended December 31, 2007.

Cash flow from investing activities

Cash flow from financing activities

A)  $2.7 million outflow                               $6.0 million inflow

B)  $1.7 million inflow                                 $1.3 million outflow

C)  $6.0 million outflow                               $2.7 million inflow

D)  $1.3 million outflow                                $1.7 million inflow

The correct answer was C)

Only the acquisition of common stock of the affiliate for $2.7 million and the purchase of the patent for $3.3 million are included in cash flow from investing activities. Since the acquisition of the stock purchase was financed with a bank loan, $2.7 million will be reported as a financing inflow. All of the other transactions are non-cash transactions and are disclosed in the notes to or in a supplementarty schedule to the cash flow statement.

3.Which of the following transactions would least likely be reported in the cash flow statement as investing cash flows?

A)   Purchase of real estate with cash borrowed from a bank.

B)   Sale of held-to-maturity securities for cash.

C)   Purchase of plant and equipment used in the manufacturing process with financing provided by the seller.

D)   Principal payments received from loans made to others.

The correct answer was C)

The purchase of plant and equipment with financing provided by the seller is a non-cash transaction. Non-cash transactions are disclosed separately in a note or supplementary schedule to the cash flow statement.

4.Dart Corporation engaged in the following transactions earlier this year:
Transaction #1 – Retired long-term debenture bonds with a face amount of $10 million by issuing 500,000 shares of common stock to the bondholders.
Transaction #2 – Borrowed $5 million from a bank and used the proceeds to purchase equipment used in the manufacturing process.
Should Dart report Transaction #1 as a financing cash flow and/or report Transaction #2 as an investing cash flow?

Transaction #1

Transaction #2

A)  No                                       No

B)  Yes                                     Yes

C)  No                                       Yes

D)  Yes                                     No

The correct answer was C)

Retiring bonds by issuing common stock to the bondholders is a non-cash transaction and is disclosed separately in a note or supplementary schedule to the cash flow statement, rather than as a financing cash flow. The cash borrowed for the equipment purchase is a financing inflow and the cash cost of the equipment is reported as an investing cash flow in the cash flow statement. Had a bond been issued to the seller of the equipment, it would be treated as a non-cash transaction and reported only in the notes to the cash flow statement.