For each of the following transactions: indicate whether it will result in an in
ID: 2580038 • Letter: F
Question
For each of the following transactions:
indicate whether it will result in an increase (+), decrease (), or have no effect (NE) on cash flows;
classify each of the transactions as an operating (O), investing (I), financing (F), or significant noncash investing / financing (NC) activity or no effect (NE)
Impact
(+), () or (NE)
Classification
(O), (I), (F),
(NC) or (NE)
Repayment of mortgage payable
Payment of interest on mortgage
Purchase of land in exchange for common shares
Issue of preferred shares for cash
Collection of accounts receivable
Declaration of cash dividend
Payment of cash dividend
Cash purchase of inventory
Selected information (CAD millions) are presented for two firms ROP and DUL, operating in the same industries:
DUL
ROH
Net income
$ 4,529
$ 161
Net cash provided by operating activities
6,539
212
Net cash provided (used) by investing activities
(1,420)
35
Net cash provided (used) by financing activities
735
(176)
Net increase in cash and cash equivalents
$ 5,854
$ 71
Cash and cash equivalents, beginning of year
$ 2,078
$ 267
Cash and cash equivalents, end of year
$ 7,932
$ 338
Required:
i) Compare and discuss the performance / activity the two companies based on the above Cash Flow and Net Income information.
ii) Which company appears to be in a stronger Cash position? Why?
Impact
(+), () or (NE)
Classification
(O), (I), (F),
(NC) or (NE)
Repayment of mortgage payable
Payment of interest on mortgage
Purchase of land in exchange for common shares
Issue of preferred shares for cash
Collection of accounts receivable
Declaration of cash dividend
Payment of cash dividend
Cash purchase of inventory
Explanation / Answer
As per policy, only one question is allowed to answer, answering question 1:
Answering 1)
Impact
(+), () or (NE)
Classification
(O), (I), (F),
(NC) or (NE)
Repayment of mortgage payable
decrease
financing (F)
Payment of interest on mortgage
decrease
operating (O)
Purchase of land in exchange for common shares
NE
significant noncash investing / financing (NC) activity
Issue of preferred shares for cash
increase
financing (F)
Collection of accounts receivable
increase
operating (O)
Declaration of cash dividend
NE
NE
Payment of cash dividend
decrease
financing (F)
Cash purchase of inventory
decrease
operating (O)
=============================================================
Answering 1)
Impact
(+), () or (NE)
Classification
(O), (I), (F),
(NC) or (NE)
Repayment of mortgage payable
decrease
financing (F)
Payment of interest on mortgage
decrease
operating (O)
Purchase of land in exchange for common shares
NE
significant noncash investing / financing (NC) activity
Issue of preferred shares for cash
increase
financing (F)
Collection of accounts receivable
increase
operating (O)
Declaration of cash dividend
NE
NE
Payment of cash dividend
decrease
financing (F)
Cash purchase of inventory
decrease
operating (O)
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