CHAPTER 5-c - transactions. 5-14 Yes. It is important to...

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CHAPTER 5 5-12 Noncash investing and financing activities generally could have been accomplished identically in substance (though not in form) by cash transactions. For example, issuing debt to purchase an asset could have been accomplished by issuing debt for cash and then using the cash to purchase the asset. Companies should not be able to prevent disclosure of such a transaction to readers of the statement of cash flows simply by using a noncash form of transaction. 5-13 This transaction should not be shown in the body of the statement of cash flows because it involves no cash flows. However, it should be reported in an accompanying schedule. Why? The transaction could have been accomplished by issuing stock for cash and then buying the fixed asset, whereby it would be in the statement of cash flows. Readers of statements of cash flows should be informed about such
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Unformatted text preview: transactions. 5-14 Yes. It is important to know of the periodic need to pay off and refinance debt. Companies with large short-term debt levels often find it an inexpensive way to borrow, but when interest rates rise or a company's financial condition worsens, refinancing may be both difficult and expensive. 5-15 The direct method and the indirect method are the two major ways of computing net cash flow from operating activities. 5-16 The information for the direct-method cash flow statement comes directly from entries into a companys cash account. 5-17 The required adjustments are to add noncash expenses and losses, deduct noncash revenues and gains, add decreases in operating assets and increases in operating liabilities, and deduct increases in operating assets and decreases in operating liabilities....
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This note was uploaded on 04/11/2008 for the course ACCT 151 taught by Professor Largay during the Spring '07 term at Lehigh University .

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CHAPTER 5-c - transactions. 5-14 Yes. It is important to...

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