Question

The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted). Please answer which of the following is true if Baldwin repurchases some of its common stock: Select: 1 It is a use of cash, and will be shown in the financing section as a subtraction. It is a source of cash, and will be shown in the investing section as an addition. It is a use of cash, and will be shown in the investing section as a subtraction. It is a source of cash and will be shown in the financing section as an addition.

Answer 1

The statement of cash flows has four distinct sections:

1. Cash involving operating activities
2. Cash involving investing activities
3. Cash involving financing activities
4. Supplemental information.

Normally, when quantum of asset ( other than cash ) for a company increases , company’s cash position decreases since the cash is used for purchase of asset.

When Baldwin repurchases some of its common stock, it is spending from its cash reserve to purchase these stocks. Therefore , it is an example of “use of cash”

Cash flow from financing activities measures the movement of cash between a firm and its owners and creditors. It indicates the means by which a company raises cash to maintain or grow its operations. Financing activities that generate positive cash flow include receiving cash from issuing stock and receiving cash from issuing bonds. Financing activities that generate negative cash flow include spending cash to repurchase previously issued stock, to pay down debt, to pay interest on debt, and to pay dividends to shareholders.

If Baldwin repurchases some of its common stocks , it is thus a case of Financing Activity

Therefore , correct answer would be " It is a use of cash . and will be shown in the financing section as subtraction “