Page 655 - Accounting Principles (A Business Perspective)

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➢ Which activities are generally included in operating activities?

➢ Which activities are included in investing activities?
➢ Which activities are included in financing activities?
➢ Where should significant investing and financing activities that do not involve cash flows be
reported?
➢ Explain the difference between the direct and indirect methods for computing cash flows from
operating activities.

➢ What are noncash expenses? How are they treated in computing cash flows from operating
activities?

➢ Describe the treatment of a gain on the sale of equipment in preparing a statement of cash flows
under the indirect method.
➢ Depreciation is sometimes referred to as a source of cash. Is it a source of cash? Explain.
➢ Why is it unlikely that cash flows from operating activities will be equal to net income for the same
period?
➢ If the net income for a given period is USD 25,000, does this mean there is an increase in cash of the
same amount? Why or why not?

➢ Why might a company have positive cash flows from operating activities even though operating at a
net loss?

➢ Indicate the type of activity each of the following transactions represents (operating, investing, or
financing) and whether it is an inflow or an outflow.
➢ Sold goods.
➢ Purchased building.

➢ Issued capital stock.
➢ Received cash dividends.
➢ Paid cash dividends.
➢ Purchased treasury stock.
➢ Sold available-for-sale securities.
➢ Made a loan.
➢ Paid interest on loan.
➢ Paid bond principal.

➢ Received proceeds of insurance settlement.
➢ Made contribution to charity.
➢ Refer to "A broader perspective: Johnson & Johnson". Answer the following questions:
➢ What was the major investing activity in 2003?
➢ Was there a net negative or positive cash flow from investing activities?
➢ Was the positive cash flow from operating activities large enough to pay the cash dividends?
➢ Real world question Refer to The Limited in the Annual report appendix. Does it use the direct
method or indirect method of reporting cash flows from operating activities?

Accounting Principles: A Business Perspective 656 A Global Text