Question

Determine how the following scenarios affect the firm's cash position. Identify whether the scenario describes a financing, investing, or operating activity (as defined on the Statement of Cash Flows).

Now, indicate which of the scenarios above are expected to increase a company's cash flow.
1. Pay preferred stock dividends
2. Buy property for a future factory
3. Issue shares of common stock
4. Increase accrued liabilities
5. Sell some old equipment

Answer 1

Answer and Explanation:

The classification is as follows:

1. Dividend of preferred stock paid - Financing activity

2. Purchase of the property for a future factory - Investing activity

3. Issuance of the common stock shares - Financing activity

4.Rise in accrued liabilities - Operating activity

5. Sell some old equipment - Investing activity

The following are expected to increase in the cash flow

1. Issuance of the common stock shares

2. Rise in accrued liabilities

3. Sell some old equipment

Increase inventory holdings - Operating activity

Sell a tract of land it has held for years - Investing activity