Financial Reporting And Analysis - Financial Reporting And Analysis Section 1
86. Cash receipts and payments related to dealing or trading securities are classified as:
- Option : A
- Explanation : Here is the relevant excerpt from Section 2.1 of the curriculum: “Cash outflows result from cash payments for inventory, salaries, taxes, and other operating- related expenses and from paying accounts payable. Additionally, operating activities include cash receipts and payments related to dealing securities or trading securities (as opposed to buying or selling securities as investments).”
87. JFK Enterprises recorded the following for the year 2012:
| Purchase of equipment | $70,000 |
| Gain from sale of van | $8,000 |
| Receipts from sale of van | $18,000 |
| Dividends paid on ordinary share capital | $10,000 |
| Interest and preference dividend paid | $412,000 |
| Salaries paid | $40,000 |
Which of the following is most likely to be the net cash flow from investing
activities?
activities?
- Option : B
- Explanation : The investing activities include the purchase of equipment, and sale of the van. Gain from the sale of van is a part of net income. Dividends and interest paid are part of financing activities and salaries paid are part of operating activities. Therefore, net cash flow from investing is an outflow of $52,000.
- Option : C
- Explanation : The only investing activity is the purchase of equipment; thus investing activity should increase by $90,000. Financing activity comprises of both short term and long term debt and thus increases by $110,000. Salaries paid is an operating activity, which decreases operating cash flows by $20,000.
89. Which of the following is most likely a non-cash transaction?
- Option : A
- Explanation : With stock dividends, a company issues additional shares of its common stock to shareholders instead of cash. B represents a set of cash transactions because in this case the company issues debt and receives cash. The cash is then used to buy land. C also represents a set of cash transactions.
90. Significant non-cash transactions are most likely disclosed in:
- Option : B
- Explanation : Significant non-cash transactions are generally disclosed as a separate note or as a supplementary schedule to the cash flow statement.
