For Each of the Following Transactions, Determine What Adjustment Is

question 17

Essay

For each of the following transactions, determine what adjustment is necessary to prepare the statement of cash flows using the indirect method.

a. Firm A sells equipment with a cost of $1,000 and accumulated depreciation of $800 for $400 cash.
b. Firm A uses the equity method to record its investment in Firm B. In the current year, A records $1,000 as equity in earnings of affiliate. No dividends are paid by B.
c. Firm A acquires a building through a capital lease transaction. The building and lease were recorded at $100,000. Firm A chooses to report this transaction in the statement of cash flows.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market; a beta above 1 indicates greater volatility than the market, while a beta below 1 indicates less.

Risk-Free Rate

A hypothetic return rate on a risk-free investment, usually shown by the returns on government securities.

Expected Return

The weighted average of all possible returns from an investment, accounting for the likelihood of each outcome.

Standard Deviation

Standard Deviation measures the amount of variation or dispersion from the average, indicating the risk associated with a variable.