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Chapter 2: 2-8DQ (page 46)

What are the three primary sections of the statement of cash flows? In what section would the payment of a cash dividend be shown?

Short Answer

Expert verified

The three primary sections of the statement of cash flow are as follows:

  1. Cash flow from operating activities
  2. Cash flow from investing activities
  3. Cash flow from financing activities

And the cash dividend is shown under cash flow from financing activities.

Step by step solution

01

Cash flow from operating activities 

Cash flow from operating activity shows the movement of cash in the organization due to its operating activities,such as buying or selling goods and services.

02

Cash flow from investing activities 

Cash flow from investing activity shows the cash inflow and outflow relating to the investment activities in the organization, such as the buying of fixed assets, investment, etc.

03

Cash flow from financing activities 

Cash flow from financing activity shows the cash inflow and outflow relating to the funds used by the organization, such as the issuing of equity shares, debentures, etc. The payment of cash dividends is also reflected in this section.

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Most popular questions from this chapter

The Haines Corp. shows the following financial data for 20X1 and 20X2:

20X1

20X2

Sales

\(3,230,000

\)3,370,000

Cost of goods sold

2,130,000

2,850,000

Gross profits

\(1,100,000

\)520,000

Selling and administrative expenses

298,000

227,000

Operating profits

\(802,000

\)293,000

Interest expense

47,200

51,600

Income before taxes

\(754,800

\)241,400

Taxes (35%)

264,180

84,490

Income after tax

\(490,620

\)156,910

For each year, compute the following and indicate whether it is increasing or

decreasing profitability in 20X2 as indicated by the ratio:

c. Interest expenses to sales

Stilley Corporation had earnings after taxes of \(436,000 in 20X2 with 200,000 shares outstanding. The stock price was \)42.00. In 20X3, earnings after taxes declined to \(206,000 with the same 200,000 shares outstanding. The stock price declined to \)27.80.

a. Compute earnings per share and the P/E ratio for 20X2.

b. Compute earnings per share and the P/E ratio for 20X3.

c. Give a general explanation of why the P/E changed. You might want to

consult the text to explain this surprising result.

Perez Corporation has the following financial data for the years 20X1 and 20X2:

20X1

20X2

Sales

\(8,000,000

\)10,000,000

Cost of goods sold

6,000,000

9,000,000

Inventory

800,000

1,000,000

b. Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year.

If we divide users of ratios into short-term lenders, long-term lenders, andstockholders,which ratios would each group be most interested in, and for

what reasons?

Baker Oats had an asset turnover of 1.6 times per year.

b. The following year, on the same level of assets, Baker’s assets turnoverdeclined to 1.4 times and its profit margin was 8 percent. How did the returnon total assets change from that of the previous year?
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