Which of the following actions are most likely to directly increase cash as shown on a...

Which of the following actions are most likely to directly increase cash as shown on a firm’s balance sheet? Select the appropriate assumptions that underlie your answer.

a. It issues $5 million of new common stock.

b. It buys new plant and equipment at a cost of $3 million.

c. It reports a large loss for the year.

d. It increases the dividends paid on its common stock.

I. Statements (b) and (d) will increase the amount of cash on a company's balance sheet. Statement (a) will decrease cash through the sale of common stock. Selling stock uses cash from financing activities. On one hand, Statement (c) would decrease cash; however, it is also possible that Statement (c) would increase cash, if the firm receives a tax refund for taxes paid in a prior year.

II. Statements (b) and (d) will increase the amount of cash on a company's balance sheet. Statement (a) will increase cash through the sale of common stock. Selling stock provides cash through financing activities. On one hand, Statement (c) would decrease cash; however, it is also possible that Statement (c) would increase cash, if the firm receives a tax refund for taxes paid in a prior year.

III. Statements (b) and (d) will decrease the amount of cash on a company's balance sheet. Statement (a) will increase cash through the sale of common stock. Selling stock provides cash through financing activities. On one hand, Statement (c) would decrease cash; however, it is also possible that Statement (c) would increase cash, if the firm receives a tax refund for taxes paid in a prior year.

IV. Statements (b) and (d) will decrease the amount of cash on a company's balance sheet. Statement (a) will decrease cash through the sale of common stock. Selling stock uses cash from financing activities. On one hand, Statement (c) would decrease cash; however, it is also possible that Statement (c) would increase cash, if the firm receives a tax refund for taxes paid in a prior year.

V. Statements (b) and (d) will decrease the amount of cash on a company's balance sheet. Statement (a) will increase cash through the sale of common stock. Selling stock provides cash through financing activities. Statement (c) would neither increase or decrease cash for taxes paid in a prior year.

Solutions

Expert Solution

Answer is Statement 5

Issue of common stock is a financing activity. As new stocks are issued, firm will receive cash in return from those who buy the stock. This will increase equity on one side and cash balance on another side of balance sheet.

When a firm purchases a new plant or equipment, it would need to pay for the same. So, the fixed asset increases and same amount of cash would decrease.

A large loss reported this year may have no impact on cash balance this year.

When dividend is paid on common stock, it is paid using the cash account, so cash decreases on one side of balance sheet and dividend liability on other side of balance sheet.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Which of the following actions are most likely to directly increase cash as shown on a firm’s balance sheet?

BALANCE SHEETWhich of the following actions are most likely to directly increase cash as shown on a firm’s balance sheet? Select the appropriate assumptions that underlie your answer.It issues $6 million of new common stock.It buys new plant and equipment at a cost of $3 million.It reports a large loss for the year.It increases the dividends paid on its common stock.Statements (b) and (d) will increase the amount of cash on a company's balance sheet. Statement (a) will decrease cash...

(Percent of sales forecasting) Which of the following accounts would most likely vary directly with the...

(Percent of sales forecasting) Which of the following accounts would most likely vary directly with the level of a firm's sales? Discuss each briefly. Yes No Yes No Cash ____ ____ Notes payable ____ ____ Marketable securities ____ ____ Plant and equipment ____ ____ Accounts payable ____ ____ Inventories ____ ____ Is cash likely to vary directly with the level of a firm's sales? (Select the best choice below.) A. Yes, cash receipts vary directly with sales and have a...

Which of the following would be most likely to increase the supply of loanable funds and...

Which of the following would be most likely to increase the supply of loanable funds and lead to low interest rates? a. Expansionary monetary policy that resulted in high rates of inflation. b. Constant policy shifts that generate uncertainty and reduce investment. c. Demographic shifts that increase the number of people in age categories with high saving rates relative to the number in age categories with a strong demand for loanable funds. d. Large budget deficits that push the government...

which of the following actions would most likely to reduce potential conflicts of interest between stockholders...

which of the following actions would most likely to reduce potential conflicts of interest between stockholders and managers? A. make the bond covenants more restrictive B. pay managers cash salaries and give them no stock options C.make it more difficult for the board of directors to fire corporate managers D. promise managers that they will receive a generous compensation packages if the corporation is taken over by another firm E.None of the answers are correct

Other things held constant, which of the following actions would increase the amount of cash on...

Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet? Question 11 options: The company declares a stock split. The company cuts its dividend. The company repurchases common stock. The company purchases a new piece of equipment. The company gives customers more time to pay their bills.

Which of the following events would most likely explain a general increase in interest rates and...

Which of the following events would most likely explain a general increase in interest rates and a decrease in private investment in the loanable funds model, ceteris paribus? A. The U.S. federal government generates a surplus of $1 trillion and uses it to pay down the national debt. B. The U.S. federal government budget goes from deficit to surplus. C. The U.S. federal government reduces the tax rate on savings. D. The U.S. federal government budget deficit increases. _______________________________________________________________________________________________________________________________________________ 2....

Increasing which of the following factors will most likely increase local species richness across the broadest...

Increasing which of the following factors will most likely increase local species richness across the broadest range of conditions? A. The number of different kinds of resources or habitats present B. Environmental stress C. Interspecific Competition D. the frequency of disturbance E. nutrient supply

QUESTION 17 Which of the following actions by a buyer is least likely to persuade a...

QUESTION 17 Which of the following actions by a buyer is least likely to persuade a court to enforce an oral contract for the sale of land? Buyer pays seller the full purchase price Buyer pays part of the purchase price and takes possession of the property Buyer pays part of the purchase price, takes possession of the property, and makes valuable improvements. Buyer pays part of the purchase price, takes possession of the property, and makes property tax and...

Which of the following is likely to contain the most acrylamide?

Part AWhich of the following is likely to contain the most acrylamide?raw potato left in the skinfried potatobaked potatoboiled potatoPart BYou are a plant geneticist and wish to alter strawberries using the same technique as was used for the Innate Potato. Which of the following do you use?RNA interferenceDNA manufactureRNA recombinationDNA rearrangementPart CA genetically modified variety of tomato is created and approved for human consumption. Which of the following is most likely to not support this?Center for Food SafetyMonsantoFood and...

Which of the following is most likely to be ruled by a court to be an...

Which of the following is most likely to be ruled by a court to be an unconscionable remedy limitation under the UCC? A. A provision that limits consequential damages for personal injuries to consumers B. A provision that limits consequential damages for personal injuries to merchants C. A provision that limits consequential damages for personal injuries to corporations D. All of the above

Subjects