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Significant Noncash Activities quiz #1

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  • What are significant non-cash activities, and how are they reported on the statement of cash flows?
    Significant non-cash activities are investing and financing transactions that do not involve cash flows. They are disclosed at the bottom of the statement of cash flows, rather than in the operating, investing, or financing sections, because they do not affect the cash account.
  • Provide an example of a significant non-cash activity and explain why it is not included in the main sections of the statement of cash flows.
    An example is exchanging a $110,000 note payable for land worth $110,000. Since no cash is exchanged, this transaction is not included in the operating, investing, or financing sections of the statement of cash flows, but is disclosed separately at the bottom.
  • Why is it important to disclose significant non-cash activities even though they do not affect cash flows?
    It is important to disclose significant non-cash activities because they represent major investing or financing transactions that impact a company's financial position. Without disclosure, users of financial statements would not be aware of these significant events.
  • What are significant non-cash activities in the context of the statement of cash flows?
    Significant non-cash activities are investing and financing transactions that do not involve cash flows. They are disclosed at the bottom of the statement of cash flows.
  • Where are significant non-cash activities reported on the statement of cash flows?
    They are disclosed at the bottom of the statement of cash flows, not within the operating, investing, or financing sections.
  • Why are significant non-cash activities not included in the main sections of the statement of cash flows?
    They are not included because they do not affect the cash account. Only transactions involving actual cash flows are included in the main sections.
  • Provide an example of a significant non-cash activity and explain its treatment on the statement of cash flows.
    Exchanging a $110,000 note payable for land worth $110,000 is a significant non-cash activity. It is disclosed at the bottom of the statement of cash flows because no cash is exchanged.
  • What is the importance of disclosing significant non-cash activities to users of financial statements?
    Disclosing these activities is important because they represent major transactions that impact a company's financial position. Without disclosure, users would not be aware of these significant events.
  • How would a transaction involving the retirement of bonds payable by issuing common stock be reported on the statement of cash flows?
    This transaction would be disclosed at the bottom of the statement of cash flows as a significant non-cash activity. It would not appear in the operating, investing, or financing sections since no cash is involved.
  • If cash were involved in a transaction that is usually a significant non-cash activity, how would it be reported?
    If cash were involved, the transaction would be included in the appropriate operating, investing, or financing section of the statement of cash flows. The direct exchange without cash is what makes it a non-cash activity requiring separate disclosure.