Question

1.) What can creditors, investors, and other users learn from an analysis of the cash flow statement?

2.) Identify the following as financing activities (F) or investing activities (I):

            a.) Purchase of equipment

            b.) Purchase of treasury stock.

            c.) Reduction of long-term debt.

            d.) Sale of building

            e.) Resale of treasury stock.

            f.) Increase in short-term debt.

            g.) Issuance of common stock.

            h.) Purchase of land.

            i.) Purchase of common stock of another firm.

            j.) Payment of cash dividends.

            k.) Gain on sale of land.

            l.) Repayment of debt principal.

3.) Indicate which of the following current assets and current liabilities are operating accounts (O) and thus included in the adjustment of net income to cash flow from operating activities and which are cash (C), investing (I), or financing (F) accounts.

            a.) Accounts payable.

            b.) Accounts receivable.

            c.) Notes payable (to bank).

            d.) Marketable securities.

            e.) Accrued expenses.

            f.) Inventory.

            g.) Prepaid expenses.

            h.) Current portion of long-term debt.

            i.) Dividends payable.

            j.) Income taxes payable.

            k.) Interest payable.

            l.) Certificates of deposit.

Answer 1

Answer to Question 1.

The Creditors, investors, and other users can learn the financial position of a firm to meets its obligation, amount financed/ repaid towards external source of finance and cash used in Investing on Non-current Assets and amount generated from sale of non-current assets from analysis of Cash flow statement.