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Chapter 2: 8DQ (page 46)

What are the three primary sections of the statement of cash flows? In what section would the payment of a cash dividend be shown?

Short Answer

Expert verified

The three primary sections of the statement of cash flow are as follows:

  1. Cash flow from operating activities
  2. Cash flow from investing activities
  3. Cash flow from financing activities

And the cash dividend is shown under cash flow from financing activities.

Step by step solution

01

Cash flow from operating activities

Cash flow from operating activity shows the movement of cash in the organization due to its operating activities,such as buying or selling goods and services.

02

Cash flow from investing activities

Cash flow from investing activity shows the cash inflow and outflow relating to the investment activities in the organization, such as the buying of fixed assets, investment, etc.

03

Cash flow from financing activities

Cash flow from financing activity shows the cash inflow and outflow relating to the funds used by the organization,such as the issuing of equity shares, debentures, etc. The payment of cash dividends is also reflected in this section.

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Most popular questions from this chapter

Ultravision Inc. anticipates sales of \(290,000 from January through April. Materials will represent 50 percent of sales, and because of level production, material purchases will be equal for each month during the four months of January, February, March, and April.

Materials are paid for one month after the month purchased. Materials purchased

in December of last year were \)25,000 (half of \(50,000 in sales). Labor costs for each of the four months are slightly different due to a provision in the labor contract in which bonuses are paid in February and April. Here are the labor figures:

January

\)15,000

February

18,000

March

15,000

April

20,000

Fixed overhead is $11,000 per month. Prepare a schedule of cash payments for January through April.

Conn Man鈥檚 Shops, a national clothing chain, had sales of \(350 million last year. The business has a steady net profit margin of 9 percent and a dividend payout ratio of 25 percent. The balance sheet for the end of last year is shown next. The firm鈥檚 marketing staff has told the president that in the coming year

there will be a large increase in the demand for overcoats and wool slacks. A

sales increase of 20 percent is forecast for the company.

BALANCE SHEET

End of year (in \) million)

Assets

Liabilities and Stockholder鈥檚 equity

Cash

\(25

Accounts payable

\)64

Accounts receivable

40

Accrued expenses

31

Inventory

82

Other payables

45

Plant and equipment

133

Common stock

50

Retained earnings

90

Total assets

\(280

Total liabilities and stockholder鈥檚 equity

\)280

All balance sheet items are expected to maintain the same percent-of-sales relationships as last year,* except for common stock and retained earnings. No change is scheduled in the number of common stock shares outstanding, and retained earnings will change as dictated by the profits and dividend policy of the firm. (Remember the net profit margin is 9 percent.)

a. Will external financing be required for the company during the coming

year?

Why is interest expense said to cost the firm substantially less than the actual expense, while dividends cost it 100 percent of the outlay?

The Denver Corporation has forecast the following sales for the first seven months of the year:

January

\(15,000

May

\)15,000

February

17,000

June

21,000

March

19,000

July

23,000

April

25,000

Monthly material purchases are set equal to 40 percent of forecast sales for the next month. Of the total material costs, 50 percent are paid in the month of purchase and 50 percent in the following month. Labor costs will run \(4,500 per month, and fixed overhead is \)4,500 per month. Interest payments on the debt will be $3,500 for both March and June. Finally, the Denver salesforce will receive a 3.00 percent commission on total sales for the first six months of the year, to be paid on June 30.

Prepare a monthly summary of cash payments for the six-month period from January through June. (Note: Compute prior December purchases to help get total material payments for January.)

U.S. Steal has the following income statement data:

Units sold

Total variable costs

Fixed costs

Total costs

Total revenue

Operating income (Loss)

60,000

\(120,000

\)50,000

\(170,000

\)360,000

$190,000

80,000

160,000

50,000

210,000

480,000

270,000

b. Confirm that your answer to part a is correct by recomputing DOL using Formula 5-3. There may be a slight difference due to rounding.

DOL=Q(P-VC)Q(P-VC)-FC

Q represents beginning units sold (all calculations should be done at this level). P can be found by dividing total revenue by units sold. VC can be found by dividing total variable costs by units sold.
See all solutions

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