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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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Lime Corporation participated in a simultaneous investing and financing transaction where it acquired a building costing $50,000 by issuing common stock. Show how Lime would report this transaction in regard to its statement of cash flows.

To determine

Explain how the acquiring of asset by common stock is recorded in the cash flow statement.

Explanation

Statement of cash flows: Cash flow statement reports all the cash transactions which are responsible for inflow and outflow of cash. The results of these transactions are reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

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.

Examples of transaction not affecting cash:

In general, most of financing and investing activities affect the amount of cash held with the company. But, there are also some transactions which do not affect the cash. Those lists of transaction are provided below:

  • Issuance of common stock for land or building: Common stock is issued on exchange of land. In this transaction, cash is not directly involved and hence, it is classified under non-cash investing activities.
  • Issuance of common stock to convert bond: Common stock is issued on conversion of bond...

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