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Unformatted text preview: h. P14–5
Transaction Effect on Cash 1.
in terms of
asset. Section of Statement Explanation $50,000 Operating (55,000) Operating 100,000 Investing Operations is defined
Cash payments for
Sale of a nonoperating Note: If the company uses the indirect method to prepare its statement of cash flows, the $15,000
loss on sale of fixed assets would be included in the operating activities section as an adjustment to
net income to arrive at net cash flow from operating activities.
(100,000) No effect
lower but Financing
Operating N/A No effect on cash.
Cash payment for an
in equity securities,
a nonoperating asset.
Issuing debt provides
to the $202,000 No effect Operating Dividend payment.
operating Net income would be would be offset by an increase
rent payable. The net of these
two is a zero effect on cash. P14–6 2012
a. Cash from operating activities 2011 2010 $
X X $ Cash from investing activities (2 0 2 ) 160 X (1 5 0 ) $ 280 (5 0 0 )
Cash from financing activities
Increase (decrease) in cash 900
110 Cash balance at beginning of year
Cash balance at end of year Missing values
90 110 $ 86
(2 9 0 ) 110 X (2 4 ) $ X 176 $ 86 $ 80 $ (1 0 2 ) $ b. Ruttman Enterprises began operations during 2010. As part of its startup phase, the company appears to
have issued large amounts of stock and/or debt to finance the acquisition of nonoperating assets, to cover
the cash used by operating activities during the startup phase, and to provide a cash surplus for future
years. During 2011, the company once again issued large amounts of stock and/or debt to finance the
acquisition of nonoperating assets and to cover the cash used by operating activities. However, the
company acquired only enough additional financing to meet these needs; it did not acquire an excessive
amount of capital through financing activities. By 2012 the company was generating cash from its
operating activities and was able to dispose...
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