CPA Financial Accounting and Reporting (FAR) : Statement of Cash Flows
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Example Questions
Example Question #1 : Statement Of Cash Flows
The Ravenswood Company has 100,000 shares of outstanding common stock on December 31, Year 2. On January 15, Year 3, Ravenswood declares a stock dividend of 10,000 shares when the market value per share is $12. On the date of record, February 1, the market price per share is $15. The dividend is issued on March 1, when the market price per share is $18. What price per share will be used in the journal entry to record the dividend?
Par value
$12
$15
$18
Par value
A memo entry will be made for the stock dividend at par value.
Example Question #2 : Statement Of Cash Flows
Which of the following will result in a decrease in total stockholder's equity?
Small stock dividend
Cash dividend
Positive net income in the year before
Large stock dividend
Cash dividend
Positive net income will increase stockholder's equity. Large and small stock dividends will have no net effect on total stockholder's equity. Cash dividends reduce total stockholder's equity by the amount of the dividend payment.
Example Question #3 : Statement Of Cash Flows
Fairway Company began Year 3 with owner's equity of $60,000 and ended Year 3 with owner's equity of $94,000. During the Year, Fairway issued 1,000 shares of new stock at a par value of $10 per share when the market value was $15 per share. Fairway also paid out a cash dividend of $2 per share to 20,000 shareholders during the year. What was net income for the year?
$59,000
$104,000
$64,000
$84,000
$64,000
Ending owner's equity equals beginning owner's equity of $60K, plus cash received for the new shares of $10K, plus the missing net income amount, minus dividends paid of $40K. Thus, we can back into net income. Net income equals $94K - $60 - $10K + $40K = $64K.$104,000
Example Question #4 : Statement Of Cash Flows
Of the following, which would be classified as a decrease in cash flow from investing activities?
Payment of Dividends
The purchase of fixed assets
Salaries Expenses
The purchase of direct materials
The purchase of fixed assets
Purchasing long term investments or long term assets is an investing activity which reduces the cash account, this resulting in a decrease in cash flow.
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