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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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The retirement of long-term debt by the issuance of common stock should be presented in a statement of cash flows as a:

Chapter 21, Problem 4MC, The retirement of long-term debt by the issuance of common stock should be presented in a statement

To determine

Indicate in which section of the statement of cash flows the retirement of long-term debt by the issuance of common stock appeared.

Explanation

Investing activities: Investing activities include cash inflows and cash outflows from purchase and sale of land, equipment, or investments.

Financing activities: Financing activities include cash inflows and outflows from issuance of common stock and debt, payment of debt and dividends.

Non-cash investing and financing activities: The investing and financing activities that do not involve cash, like exchange of property or land for common stock, are referred to as non-cash investing and financing activities.

Some examples of non-cash investing and financing activities:

    1. Issuance of stock to retire a debt.

    2. Purchase of an asset by issuing stock, bonds or a note payable.

    3. Exchange of non-cash assets.

    4. Conversion of debt to common stock.

    5. Conversion of preferred to common stock.

Justification for correct answer:

Option a: Generally, non- cash items are reported in a separate schedule as “non-cash investing and financing activities”...

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