Question

Exercise 1 Indicate whether each event or transaction below affects (i.e., increases or decreases) the cash flows of a corporation related to its Operating Activities (CFO), Investing Activities (CFI), or Financing Activities (CFF). Please write how much the net change on cash flows by item will be. If the items do not affect cash flows, please use "NA". Example: A company buys a new building for $200,000 paying cash. Answer: CFI, -$200,000 (or -$200k) 1. A local government donates land with fair value of $50,000 to a firm as an inducement to locate manufacturing facilities in the area. 2. A firm sells for $20,000 machinery originally costing $40,000 and with accumulated depreciation of $35,000. 3. A firm declares cash dividends of $15,000, of which it pays $12,000 immediately to its shareholders. 4. A firm writes down inventories by $18,000 to reflect the loss in the historical cost of its inventories. _5. A firm records $60,000 depreciation expense on manufacturing facilities for the period. Keep in mind that the firm has sold all goods it manufactured this period. 6. A firm records interest expense of $15,000 for the period on bonds issued several years ago at a discount, comprising $14,500 cash payment and a $500 addition to Bonds (Liability). 7. A firm reclassifies $30,000 long-term loans payable as current liability. _8. A firm sells inventory costing $50,000 for $66,000 cash, thus, realizing a profit of $16,000 9. A firm recognizes income tax expense of $80,000 for the period. Tax Payable liability increased by $20,000 for the period. The firm had no prepaid tax asset. 10. A firm recognizes insurance expense of $20,000 for the period. Prepaid Insurance asset decreased by $3,000 for the period. The firm had no insurance payable liability.

Indicate whether each event or transaction below affects (i.e., increases or decreases) the cash flows of a corporation related to its Operating Activities (CFO), Investing Activities (CFI), or Financing Activities (CFF). Please write how much the net change on cash flows by item will be. If the items do not affect cash flows, please use “NA”.

Example: A company buys a new building for $200,000 paying cash.

                Answer: CFI, -$200,000 (or -$200k)

__________              1. A local government donates land with fair value of $50,000 to a firm as an inducement to locate manufacturing facilities in the area.

___________            2. A firm sells for $20,000 machinery originally costing $40,000 and with accumulated depreciation of $35,000.

___________             3. A firm declares cash dividends of $15,000, of which it pays $12,000 immediately to its shareholders.

___________             4. A firm writes down inventories by $18,000 to reflect the loss in the historical cost of its inventories.

___________             5. A firm records $60,000 depreciation expense on manufacturing facilities for the period. Keep in mind that the firm has sold all goods it manufactured this period.

___________              6. A firm records interest expense of $15,000 for the period on bonds issued several years ago at a discount, comprising $14,500 cash payment and a $500 addition to Bonds (Liability).

___________              7. A firm reclassifies $30,000 long-term loans payable as current liability.

___________               8. A firm sells inventory costing $50,000 for $66,000 cash, thus, realizing a profit of $16,000.

___________               9. A firm recognizes income tax expense of $80,000 for the period. Tax Payable liability increased by $20,000 for the period. The firm had no prepaid tax asset.

__________                 10. A firm recognizes insurance expense of $20,000 for the period. Prepaid Insurance asset decreased by $3,000 for the period. The firm had no insurance payable liability.

Answer 1

_____NA_____              1. A local government donates land with fair value of $50,000 to a firm as an inducement to locate manufacturing facilities in the area.

_____CFI, $20000______            2. A firm sells for $20,000 machinery originally costing $40,000 and with accumulated depreciation of $35,000.

___CFF, ($12000)_____             3. A firm declares cash dividends of $15,000, of which it pays $12,000 immediately to its shareholders.

_____NA______             4. A firm writes down inventories by $18,000 to reflect the loss in the historical cost of its inventories.

____NA_______             5. A firm records $60,000 depreciation expense on manufacturing facilities for the period. Keep in mind that the firm has sold all goods it manufactured this period.

_______CFF, ($14500)____              6. A firm records interest expense of $15,000 for the period on bonds issued several years ago at a discount, comprising $14,500 cash payment and a $500 addition to Bonds (Liability).

______NA_____              7. A firm reclassifies $30,000 long-term loans payable as current liability.

____CFO, $66000_______               8. A firm sells inventory costing $50,000 for $66,000 cash, thus, realizing a profit of $16,000.

___CFO, $20000________               9. A firm recognizes income tax expense of $80,000 for the period. Tax Payable liability increased by $20,000 for the period. The firm had no prepaid tax asset.

____CFO, $3000______                 10. A firm recognizes insurance expense of $20,000 for the period. Prepaid Insurance asset decreased by $3,000 for the period. The firm had no insurance payable liability.