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Q14-12RQ

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Horngren'S Financial And Managerial Accounting
Found in: Page 769

Short Answer

Question: What accounts on the balance sheet must be evaluated when completing the financing activities section of the statement of cash flows?

Answer

Financing activity records transactions related to long-term liabilities and equity.

See the step by step solution

Step by Step Solution

Step 1: Evaluating T-accounts of long-term liabilities 

While computing cash generated from or used for financing activities it is important to evaluate the T-accounts of each long-term liability. Opening and closing balances of each long-term liability can be directly picked up from the balance sheet

Step 2: Evaluating T-accounts of equity 

Issuance of new common stock, Buy-back of existing common stock, dividend paid, etc. are a few examples of transactions that should be recorded while computing cash flow from financing activity.

Most popular questions for Business-studies Textbooks

Rouse Exercise Equipment, Inc. reported the following financial statements for 2018:

ROUSE EXERCISE EQUIPMENT, INC.

Income statement

Year ended December 31, 2018

Net sales revenue

$713,000

Cost of goods sold

342,000

Gross Profit

371,000

Operating expense:

  • Depreciation expense

54,000

  • Other operatin expenses

210,000

Net Income

$107,000

ROUSE EXERCISE EQUIPMENT, INC.

Comparative Balance sheet

December 31, 2018 and 2017

2018

2017

Assets

Current assets:

Cash

17,000

16,000

Accounts receivable

57,000

46,000

Merchandise inventory

79,000

90,000

Long term assets:

Plant assets

260,500

216,400

Accumulated depreciation-Plant assets

(38,500)

(32,400)

Investments

96,000

73,000

Total assets

$471,000

$409,000

Liabilities

Current liabilities

Accounts payable

72,000

71,000

Salaries payable

3,000

5,000

Long-term liabilities

Notes payable

61,000

69,000

Total liabilities

136,000

145,000

Stockholder’s equity

Common stock, no par

45,000

34,000

Retained earnings

290,000

230,000

Total stockholder’s equity

335,000

264,000

Total liabilities and stockholder’s equity

$471,000

$409,000

Requirements

1. Compute the amount of Rouse Exercise’s acquisition of plant assets. Assume the acquisition was for cash. Rouse Exercise disposed of plant assets at book value. The cost and accumulated depreciation of the disposed asset was $47,900. No cash was received upon disposal.

2. Compute new borrowing or payment of long-term notes payable, with Rouse

Exercise having only one long-term notes payable transaction during the year.

3. Compute the issuance of common stock with Rouse Exercise having only one

common stock transaction during the year.

4. Compute the payment of cash dividends.

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