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Investing Activities quiz #1

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  • What types of transactions are included in the investing activities section of the statement of cash flows?
    The investing activities section includes cash flows related to the purchase and sale of long-term assets such as equipment, land, intangibles, and long-term investments. Cash inflows occur when these assets are sold, and cash outflows occur when they are purchased.
  • How is the cash flow from the sale of a plant asset determined for the statement of cash flows?
    The cash flow from the sale of a plant asset is the amount of cash received from the sale, regardless of whether there is a gain or loss. This amount is reported as a cash inflow in the investing activities section.
  • Why is it important to understand the journal entry for the sale of a long-term asset when preparing the statement of cash flows?
    Understanding the journal entry for the sale of a long-term asset is important because it helps identify the actual cash received, which is the amount reported as an investing cash inflow. The entry also shows how accumulated depreciation and asset cost are removed from the books.
  • How do changes in the equipment and accumulated depreciation accounts help determine cash flows from investing activities?
    Analyzing changes in the equipment and accumulated depreciation accounts helps determine cash flows by revealing purchases (outflows) and sales (inflows) of assets. Reviewing these accounts, along with depreciation expense and asset disposals, allows accurate calculation of cash flows from investing activities.
  • What types of transactions are included in the investing activities section of the statement of cash flows?
    The investing activities section includes cash flows from the purchase and sale of long-term assets such as equipment, land, intangibles, and long-term investments.
  • How is the cash flow from the sale of a plant asset determined for the statement of cash flows?
    The cash flow from the sale of a plant asset is the actual cash received from the sale, regardless of any gain or loss, and is reported as a cash inflow in investing activities.
  • Why is understanding the journal entry for the sale of a long-term asset important when preparing the statement of cash flows?
    It helps identify the actual cash received, which is reported as an investing cash inflow, and shows how accumulated depreciation and asset cost are removed from the books.
  • How do changes in the equipment and accumulated depreciation accounts help determine cash flows from investing activities?
    Analyzing these accounts reveals purchases (outflows) and sales (inflows) of assets, allowing accurate calculation of cash flows from investing activities.
  • What is the effect of purchasing equipment on the statement of cash flows?
    Purchasing equipment results in a cash outflow reported in the investing activities section.
  • When selling equipment, what amounts must be removed from the books, and why is this important for cash flow analysis?
    Both the equipment's historical cost and its accumulated depreciation must be removed, which is important for determining the correct cash flow from the sale.