Effect of transactions involving the market value methods on the statement of cash flows. Refer to the
Question:
Effect of transactions involving the market value methods on the statement of cash flows. Refer to the simplified statement of cash flows in Exhibit 4.12. Numbers appear on 1 1 of the lines in the statement. Ignore the unnumbered lines in considering the transactions below.
Assume that the accounting cycle is complete for the period and that the firm has prepared all of its financial statements. It then discovers that it has overlooked a transaction. It records the transaction in the accounts and corrects all of the financial statements. For each of the following transactions or events, indicate which of the numbered lines of the statement of cash flows change and the amounts and directions of the changes (increase or decrease). Ignore income tax effects.
a. A firm purchased equity securities costing $59,800 during the period. The firm classifies these as short-term Securities Available for Sale.
b. A firm sold for $47,900 equity securities classified as short-term Securities Available for Sale. The securities originally cost $42,200 and had a book value of $44,000 at the time of sale.
c. A firm sold for $18,700 equity securities classified as short-term Securities Available for Sale. The securities originally cost $25,100 and had a book value of $19,600 at the time of sale.
d. A particular equity security purchased during the period for $220,500 had a market value of $201,500 at the end of the accounting period. The firm classifies the security as a shortterm Security Available for Sale. The firm has already recorded the purchase.
e. Assume the same information as in part d except that the market value of the security at the end of the accounting period is $227,900.
f. A firm receives a dividend of $8,000 on shares held as a long-term Security Available for Sale and accounted for using the market value method.
g. A firm writes down, from $10,000 to $8,000. Securities Available for Sale accounted for with the market value method.
Step by Step Answer:
Financial Accounting Introduction To Concepts Methods And Uses
ISBN: 9780324222975
11th Edition
Authors: Clyde P. Stickney, Roman L. Weil