An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures of the entity. This transaction should be treated in the cash flow statement as follows:a.The purchase of the building should be investing cash outflow and the issuance of shares and the debentures financing cash outflows.b.The purchase of the building should be investing cash outflow and the issuance of debentures financing cash outflows while the issuance of shares investing cash outflow.c.Ignore the transaction totally since it is a noncash transaction. No mention is required in either the cash flow statement or anywhere else in the financial statements.d.This does not belong in a cash flow statement and should be disclosed only in the footnotes to the financial statements.Clear my choice
Question
An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures of the entity. This transaction should be treated in the cash flow statement as follows:a.The purchase of the building should be investing cash outflow and the issuance of shares and the debentures financing cash outflows.b.The purchase of the building should be investing cash outflow and the issuance of debentures financing cash outflows while the issuance of shares investing cash outflow.c.Ignore the transaction totally since it is a noncash transaction. No mention is required in either the cash flow statement or anywhere else in the financial statements.d.This does not belong in a cash flow statement and should be disclosed only in the footnotes to the financial statements.Clear my choice
Solution
The correct answer is c. Ignore the transaction totally since it is a noncash transaction. No mention is required in either the cash flow statement or anywhere else in the financial statements.
Here's why:
A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period.
In this case, the transaction involves the exchange of equity shares and debentures for a building. Since no cash is involved in this transaction, it is considered a non-cash transaction. Non-cash transactions are typically excluded from the cash flow statement as they do not involve any cash inflows or outflows.
However, it's important to note that while this transaction is not reported in the cash flow statement, it should be disclosed in the notes to the financial statements to ensure full transparency of the company's financial activities.
Similar Questions
Cash inflows and outflows associated with changes in non-current liabilities and equity, not arising from profit are included in which section of the statement of cash flows?Group of answer choicesNon-current.Operating.Financing.Investing.
Cash outflows from financing activities include:dividends paid to shareholders.the lending of money to another business.payment of income tax.cash paid for the purchase of shares.
Cash flows from financing in the statement of cash flows would include which of the following?1 pointPaying salaries for the monthPurchase of landPaying dividends to shareholdersSelling goods or services to customers
Which of the following would not be classified as a financing activity in a statement of cash flows?Group of answer choicesProceeds from a share issue.Repayment of borrowings.Proceeds from borrowings.Dividends received.
Which of the following would be included in cash flows from financing activities?Multiple ChoiceCash proceeds from sales.Cash received from a sale of land.Cash dividends paid.Cash used for purchases of equipment.
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