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Financing Activities quiz #1

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  • What are the main types of cash inflows and outflows classified under financing activities in the cash flow statement?
    Cash inflows from financing activities include selling bonds or notes payable, issuing equity, and selling treasury stock. Cash outflows include repaying bonds or notes payable (principal only), paying dividends, and purchasing treasury stock.
  • Why is the payment of dividends considered a financing activity rather than an operating activity in the cash flow statement?
    Payment of dividends is considered a financing activity because it involves distributing profits to shareholders, which affects equity, rather than being related to the company's core operations.
  • How do changes in retained earnings and dividends payable help determine the amount of cash dividends paid during a period?
    Retained earnings increase with net income and decrease with dividends declared. Dividends payable increases when dividends are declared and decreases when dividends are paid. By analyzing these accounts, you can determine the actual cash dividends paid.
  • What is the difference between dividends declared and dividends paid, and which is reported in the cash flow statement?
    Dividends declared are the amounts announced to be paid to shareholders, increasing dividends payable. Dividends paid are the actual cash outflows to shareholders, and only dividends paid are reported in the cash flow statement under financing activities.
  • When repaying notes or bonds payable, which portion is classified as a financing activity and why?
    Only the repayment of the principal amount of notes or bonds payable is classified as a financing activity because it reduces long-term liabilities. Interest payments are classified as operating activities.
  • Why is it important to distinguish between operating current liabilities and dividends payable when preparing the cash flow statement?
    It is important because dividends payable is related to financing activities, not operating activities. Including it in the wrong section would misstate the cash flows from operations and financing.
  • What are the main types of cash inflows and outflows classified under financing activities in the cash flow statement?
    Cash inflows include selling bonds or notes payable, issuing equity, and selling treasury stock. Cash outflows include repaying bonds or notes payable (principal only), paying dividends, and purchasing treasury stock.
  • Why is the payment of dividends considered a financing activity rather than an operating activity in the cash flow statement?
    Payment of dividends is a financing activity because it involves distributing profits to shareholders, affecting equity, not the company's core operations. It is not related to operating current liabilities.
  • How do changes in retained earnings and dividends payable help determine the amount of cash dividends paid during a period?
    Retained earnings increase with net income and decrease with dividends declared, while dividends payable increases when dividends are declared and decreases when dividends are paid. By analyzing these accounts, you can determine the actual cash dividends paid.
  • What is the difference between dividends declared and dividends paid, and which is reported in the cash flow statement?
    Dividends declared are amounts announced to be paid to shareholders, increasing dividends payable, while dividends paid are the actual cash outflows to shareholders. Only dividends paid are reported in the cash flow statement under financing activities.
  • In financial accounting, how is paying down debts such as credit card balances classified in the cash flow statement?
    Paying down debts, such as credit card balances, is considered a cash outflow from financing activities in the cash flow statement, as it involves repaying principal on liabilities.