While Preparing a Statement of Cash Flows,you Encountered the Following

question 75

Essay

While preparing a statement of cash flows,you encountered the following transaction:
February 1,2011: Galvinize Corporation acquired a small office building in exchange for 5,000 shares of its own common stock; par value $10 per share; market value $15 per share.
A. Should this transaction be shown on the statement of cash flows?
A. Yes
B. Because it is a direct exchange, it is reported on the statement of cash flows in a supplemental schedule or note as "Office building, acquired for 5,000 shares of Galvinize Corporation's common stock, $75,000."
B. Why or why not?

---

Definitions:

Investments

Assets or items acquired with the goal of generating income or appreciating in value over time.

Indirect Method

A way of calculating cash flows for operational activities in the cash flow statement by starting with net income and adjusting for non-cash transactions.

Cash Flows

The total amount of money being transferred in and out of a business, especially affecting liquidity.

Operating Activities

Activities that relate directly to the primary operations of a company, such as manufacturing, distributing, marketing, and selling a product or service.