Cash flows from operating activities
On its income statement for a recent year, Continental Airlines, Inc. reported a net loss of $68
million from operations. On its
statement of cash flows
, it reported $457 million of cash flows
from operating activities.
Explain this apparent contradiction between the loss and the positive cash flows.
There were net additions, such as depreciation and amortization of intangible assets of
$389 million, to the net loss reported on the income statement to convert the net loss from the
accrual basis to the cash basis. For example, depreciation is an expense in determining net
income, but it does not result in a cash outflow. Thus, depreciation is added back to the net loss
in order to determine cash flow from operations.
Effect of transactions on cash flows
State the effect (cash receipt or payment and amount) of each of the following transactions,
considered individually, on cash flows:
Sold a new issue of $200,000 of bonds at 99.
Purchased 4,000 shares of $35 par common stock as treasury stock at $70 per share.
Sold 10,000 shares of $20 par common stock for $50 per share.
Purchased a building by paying $60,000 cash and issuing a $100,000 mortgage note
Retired $250,000 of bonds, on which there was $2,500 of unamortized discount, for
Purchased land for $320,000 cash.
Paid dividends of $2.00 per share. There were 25,000 shares issued and 4,000 shares of
Sold equipment with a book value of $50,000 for $72,000.
Enter all amounts as positive numbers.