Any Given Transaction May Affect a Statement of Cash Flows

question 142

Essay

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.

---

Definitions:

Market Value

Market value is the price at which an asset would trade in a competitive auction setting, reflecting what a buyer is willing to pay.

Variable Manufacturing Costs

Variable manufacturing costs are expenses that fluctuate with production volume, such as raw materials and direct labor costs.

Contribution Margin

The amount remaining from sales revenue after variable expenses are deducted, indicating how much contributes to covering fixed costs and generating profit.

Production Capacity

The maximum amount of goods or services that a facility can produce over a given time period under normal operating conditions.