George Corp

question 52

Essay

George Corp.'s policy is to report all cash inflows from interest and dividends in the investing section and cash outflows arising from interest and dividends in the financing section. Angela's activities for the year ended December 31, 2019 included the following:
• Declared a $12,000 cash dividend payable on January 15, 2020.
• Acquired the right to use an automobile costing $30,000 under a lease agreement.
• Declared and issued a stock dividend valued at $15,000.
• Issued $330,000 in ordinary shares.
• Accounts payable increased $18,000 during the year.
• Paid $980,000 to repurchase bonds. The book value of the bonds was $1,010,000.
• Made a $15,000 principal payment on a bank loan.
• Interest expense for the period was $8,000. The interest payable account increased
$2,000.
Required:
a. Prepare the cash flows from financing activities section of the statement of cash flows.
b. Identify how the activities listed above that are not financing activities would be reported in the statement of cash flows assuming that the statement is prepared using the indirect method.

---

Definitions:

EBIT

Earnings Before Interest and Taxes, a measure of a company's profitability that excludes interest and income tax expenses.

Degree of Financial Leverage

A measure of a company's use of borrowed funds to finance its operations, indicating the sensitivity of its earnings to fluctuations in operational income.

EPS

Earnings Per Share (EPS) is a financial metric that indicates the portion of a company's profit allocated to each outstanding share of common stock.

Operating Leverage Analysis

Examination of how fixed operating costs relate to profit levels, assessing the degree to which a firm can increase profits by increasing sales.