What will be the cash flows when we are borrowing under a revolving line of credit in order to buy shares of an acquired company? (type and direction)
CFF for amount borrowed (Inflow) CFI for investment in the acquired company. (outflow). Does that seem right??? CP
I agree CPK
but stalla says that it is recognized as a cash outflow in the financing activities section of the statement of cash flows where is the true?
where in Stalla…?
SS-07 L1-01306 Choice “a” is correct. Borrowing under a revolving line of credit would be a cash outflow under the financing activities section. Choice “b” is incorrect. Assumed debt of an acquired company would be part of investing activities rather than financing activities. Choice “c” is incorrect. Proceeds from the sale of new preferred shares would be a cash inflow under the financing activities section. Choice “d” is incorrect. The issuance of a stock dividend is a noncash event that has no affect on the statement of cash flows. In comparision, the payment of a cash dividend would be a cash outflow in the financing activity section of the statement of cash flows.
Here is the way I see it… Cash inflow from borrowing = CFF Cash outflow from purchase = CFI Cash outflow to repay loan = CFF The only CFF outflow would be repayment of the loan.
So stalla is wrong
That is my opinion. I would get CPK’s thoughts… he is ripping FSA up and down.
No, I believe you have not done the Customary software update to the Passmaster… I show the following for the same question: Choice “a” is correct. Borrowing under a revolving line of credit would be a cash inflow under the financing activities section. The purchase of the shares would be considered as a separate transaction reported as a cash outflow under investing activities. Note, however, that if debt were issued directly in exchange for the shares, this would be a noncash event that would be disclosed, but not reported on the statement of cash flows. Choice “b” is incorrect. Assumed debt of an acquired company would be part of investing activities rather than financing activities. Assuming that cash was paid for the acquisition, this transaction would be reported as one line item under investing activities (e.g., cash paid for investment in XYZ Company) Choice “c” is incorrect. Dividends received would be a cash inflow under operating activities. Remember that under U.S. GAAP both dividends and interest received is reported as operating activities. Choice “d” is incorrect. The issuance of a stock dividend is a noncash event that has no affect on the statement of cash flows. In comparison, the payment of a cash dividend would be a cash outflow in the financing activity section of the statement of cash flows. And the question reads: same question, same ID: Which of the following events would be reported as a cash inflow in the financing activities section of the statement of cash flows? a. Borrowing under a revolving line of credit in order to buy shares of an acquired company. b. Debt of an acquired company assumed by the parent company. c. Cash dividends received from an unaffiliated company. d. Issuance of a stock dividend.