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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Why are direct exchanges of long-term debt for items of property, plant, and equipment included in supplementary information for the statement of cash flows even though the exchanges do not affect cash?

To determine

Introduction:

Non-cash investing and financing activities are those activities that do not involve inflow and outflow of cash, but they are required to be recorded as they have an impact on the future or present performance of the company.

To state:

The reason exchange of long-term debts for items of property, plant, and equipment are shown in the footnotes of cash flow statements even though it does not require any cash transaction.

Explanation

Cash flow statements include only those cash items from operating, investing and financing activities which have their impact on cash and cash equivalents. However, some of the non-cash investing and financing activities are also recorded in the cash flow statements such as direct exchange of long-term debts for asset...

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