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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Which of the following need not be disclosed in a schedule accompanying the statement of cash flows as an investing and financing activity not affecting cash?

  1. a. acquisition of fixed assets in exchange for capital stock
  2. b. dividend distributed in capital stock of the company (stock dividend)
  3. c. retirement of a bond issue through the issuance of another bond issue
  4. d. conversion of convertible debt to capital stock

To determine

Identify the correct option that need not to be reported as non-cash transaction in financing and investment activities.

Explanation

Financing activities: Financing activities are needed to obtain resources from owners and provide them with a return on their investment. These activities also deal with borrowing money from creditors and repayment of those obligations.

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

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

Justification for correct answer:

Option (b) Company declared stock dividend. These transactions  do not affect cash directly. The issuance of stock a dividend is not considered to be a financing activity and it is not reported in the cash flow statement...

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