Cash Flows from Investing Activities Quiz

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Questions and Answers

What accounts are primarily affected by investing activities?

Short-term Investments and Intangible Assets

Long-term Assets and Investments (correct)

Operating Expenses and Revenues

Current Assets and Liabilities

How much cash did ShopMart pay to purchase plant assets?

$15,000

$55,000

$310,000 (correct)

$50,000

What is shown as an outflow of cash in the investing activities section?

Gain from disposal of plant assets

Depreciation expense

Cash received from sale of plant assets

Cash paid to purchase plant assets (correct)

What was the cash receipt from the sale of plant assets?

<p>$50,000 (B)</p> Signup and view all the answers

Which statement accurately describes the net cash from investing activities?

<p>It shows a net cash outflow. (D)</p> Signup and view all the answers

Flashcards

What are investing activities?

Investing activities are transactions that relate to acquiring and disposing of long-term assets such as property, plant, and equipment (PP&E), intangible assets, and investments. These activities have a direct impact on a company's long-term financial health and growth.

Explain the concept of cash inflow and outflow in investing activities.

Cash outflow occurs when a company spends cash on an investing activity, such as buying a new piece of equipment. Cash inflow occurs when a company receives cash from an investing activity, such as selling a building.

How are investing activities analyzed?

To analyze investing activities, you review the changes in long-term assets that occur during a financial period, often a year. This involves comparing the beginning balance of each asset account to the ending balance.

What is the significance of a T-account in analyzing investing activities?

The T-account, a simple tool used to track the flow of money into and out of an account, helps understand how the long-term assets have changed in value. This can reveal purchases, sales, or depreciation.

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How does Depreciation expense affect the cash flow from investing activities?

Depreciation expense is the systematic allocation of the cost of a tangible asset over its useful life. This is reflected in the Accumulated Depreciation account, which shows the total depreciation charged to date. This information is crucial for determining the net book value of long-term assets, which is used to calculate the cash flow from sale or disposal.

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Study Notes

Cash Flows from Investing Activities

Investing activities affect long-term assets like plant assets, investments, and notes receivable.
ShopMart's balance sheet (Exhibit F:14-3) shows these.
T-accounts help evaluate if there was an acquisition or disposal for each long-term asset.
Beginning and ending balances for each account are from the comparative balance sheet.
Depreciation expense is included in the Accumulated Depreciation account (from the income statement).
Information about acquisitions and disposals is from additional data.

Example

ShopMart purchased $310,000 in plant assets using cash.
Sold plant assets with a cost of $55,000 and accumulated depreciation of $15,000, generating a $10,000 gain.
ShopMart paid $310,000 cash for plant assets (outflow).
To find the cash received from the disposal of plant assets, recreate the journal entry and solve for the missing cash amount.
$50,000 cash was received from the sale of plant assets (inflow).
Net cash from investing activities is the net cash used for investing activities (outflow).

Determining Cash Flow

Use information from the balance sheet and income statement to calculate the change to long-term assets.
Net cash from investing activities is calculated.
Investing activities are reported after operating activities in the statement of cash flows.

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Description

Test your knowledge on cash flows related to investing activities, including the impact on long-term assets such as plant assets and investments. This quiz will help you understand acquisition and disposal processes, as well as the importance of depreciation in evaluating cash flows. Use T-accounts and balance sheets to analyze ShopMart's financial activities effectively.