Once a company has computed the net cash flow from operating activities, the next step is to determine whether any other changes in balance sheet accounts caused an increase or decrease in cash. Net cash flows from investing and financing activities can be determined by examining the changes in noncurrent balance sheet accounts” – Explain the statement by building a problem as well as the solution.
b) Explain the following items in your own words.
(a) Operating expenses include depreciation expense of $33,000 and the expiration of prepaid expenses of $2,000.
(b) Land was sold at its book value for cash.
(c) Cash dividends of $55,000 were declared and paid.
(d) Interest expense of $12,000 was paid in cash.
(e) Equipment with a cost of $166,000 was purchased in cash. Equipment with a cost of $41,000 and a book value of $36,000 was sold for $34,000 cash.
(f) Bonds were redeemed at their book value for cash.
(g) Common stock ($1 par) was issued for cash.
c) “Without adequate cash, a company cannot pay employees, settle debts, pay out dividends, or acquire equipment. A statement of cash flows indicates where the company’s cash comes from and how the company uses its cash. Employees, creditors, stockholders, and customers should be particularly interested in this statement because it alone shows the flows of cash in a business” – Define logically.