CHAPTER 6
UNDERSTANDING CASH FLOW STATEMENTS
SOLUTIONS
1. B is correct. Operating, investing, and financing are the three major classifications of activities in a cash flow statement. Revenues, expenses, and net income are elements of the income statement. Inflows, outflows, and net flows are items of information in the statement of cash flows.
2. B is correct. Purchases and sales of long-term assets are considered investing activities. Note that if the transaction had involved the exchange of a building for other than cash (for example, for another building, common stock of another company, or a long-term note receivable), it would have been considered a significant noncash activity.
3. C is correct. Payment of dividends is a financing activity under U.S. GAAP. Payment of interest and receipt of dividends are included in operating cash flows under U.S. GAAP. Note that IFRS allow companies to include receipt of interest and dividends as either operating or investing cash flows and to include payment of interest and dividends as either operating or financing cash flows.
4. C is correct. Noncash transactions, if significant, are reported as supplementary information, not in the investing or financing sections of the cash flow statement.
5. C is correct. Interest expense is always classified as an operating cash flow under U.S. GAAP but may be classified as either an operating or financing cash flow under IFRS.
6. C is correct. Taxes on income are required to be separately disclosed ...
