Reading 34: Understanding the Cash Flow Statement - LOS b ～ following, reported, white, style, black

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Q1. 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% 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) $6.0 million outflow                                    $2.7 million inflow

B) $1.7 million inflow                                      $1.3 million outflow

C) $2.7 million outflow                                    $6.0 million inflow

Q2. 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.

With respect to these transactions, should Dart report transaction #1 as a financing cash flow and/or transaction #2 as an investing cash flow?

A)   Only one should be reported as such.

B)   Neither should be reported as such.

C)   Both should be reported as such.

Q3. Which of the following transactions would least likely be reported in the cash flow statement as investing cash flows?

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

B)   Principal payments received from loans made to others.

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

Q4. How would a stock split be reported on the statement of cash flows? A stock split would:

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

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

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

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