Effects on 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 following transactions.

Assume that a firm has completed the accounting cycle for the period and prepared all of the 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, indicate which of the numbered lines of the statement of cash flows changes and by how much. Ignore income tax effects.

a. The firm issues common shares for $200,000.

b. The firm repurchases for $75,000 common shares originally issued at par for $50,000 and retires them.

c. Holders of convertible bonds with a book value of $100,000 and a market value of

$240,000 convert them into common shares with a par value of $10,000 and a market value of $240,000. Respond assuming that the firm uses (1) the book value method to record bond conversions, and (2) the market value method to record bond conversions.

d. The firm issues for $15,000 treasury shares that have been previously acquired for

$20,000.

e. The directors declare a stock dividend. The par value of the shares issued is $1,000, and their market value is $300,000.

f. The directors declare a cash dividend of $70,000, but the firm has not yet paid it.

g. The firm pays a previously declared cash dividend of $70,000.

h. Holders of stock rights exercise them. The shares issued have a par value of $1,000 and a market value of $35,000 on the date of exercise. The firm receives the exercise price of

$20,000 in cash.

PROBLEMS AND CASES