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Chapter 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

Easter Egg and Poultry Company has \(2,000,000 in assets and \)1,400,000 of debt. It reports net income of $200,000.

a. What is the firm’s return on assets?

For December 31, 20X1, the balance sheet of Baxter Corporation was as follows:

Current assets

Liabilities

Cash

\(15,000

Accounts payable

\)17,000

Accounts receivable

20,000

Notes payable

25,000

Inventory

30,000

Bonds payable

55,000

Prepaid expenses

12,500

Fixed assets

Stockholder’s equity

Plant and equipment (gross)

Less: accumulated depreciation

\(255,000

51,000

Preferred stock

\)25,000

Net plant and equipment

\(204,000

Common stock

60,000

Paid in capital

30,000

Retained earnings

69,500

Total assets

\)281,500

Total liabilities and stockholder’s equity

\(281,500

Sales for 20X2 were \)245,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was \(24,500. Depreciation expense was 8 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, while the interest rate on the bonds payable was 12 percent. This interest expense is based on December 31, 20X1 balances. The tax rate averaged 20 percent.

\)2,500 in preferred stock dividends were paid, and \(5,500 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.

During 20X2, the cash balance and prepaid expenses balances were

unchanged. Accounts receivable and inventory increased by 10 percent. A new machine was purchased on December 31, 20X2, at a cost of \)40,000. Accounts payable increased by 20 percent. Notes payable increased by \(6,500 and bonds payable decreased by \)12,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.

c. Prepare a balance sheet as of December 31, 20X2.

Landers Nursery and Garden Stores has current assets of \(220,000 and fixed assets of \)170,000. Current liabilities are \(80,000 and long-term liabilities are \)140,000. There is $40,000 in preferred stock outstanding and the firm has

issued 25,000 shares of common stock. Compute book value (net worth)

per share.

Billy’s Crystal Stores Inc. has assets of $5,960,000 and turns over its assets 1.9 times per year. Return on assets is 8 percent. What is the firm’s profit margin (return on sales)?

What is free cash flow? Why is it important to leveraged buyouts?
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