What section of the cash flow statement sheet (operating, investing, financing) does each of the following...

What section of the cash flow statement sheet (operating, investing, financing) does each of the following belong to and why?

A) Interest Expense

B) Interest Revenue

C) Dividends received from investments

D) Dividends declared and paid to stockholders

Solutions

Expert Solution

Interest Expenses

It is to be noted that Interest expense is an expense considered in Income Statement which reduces the “Net Income”.

---Hence, while preparing Cash flows from Indirect Method, Interest expenses is to be first added to Net Income in Operating Activities section, and then shown under “Financing” activities section as an “outflow”.

---If Direct Method is followed, Interest expenses is directly shown under “Financing Activities” section.

Interest Revenues

Interest revenues are shown under “Investing activities” section as an Inflow of Cash. This is because Interest Revenue are the revenues received from Investments made by the organisation. Its an Investment income.

---If Indirect method is used, Interest Revenues are first deducted from Net Income under “operating activities” and then shown under “Investing activities” as a “Cash Inflow”

---If direct method is used, Interest Revenues are directly shown under “investing activities”.

Dividends received from Investments.

These are the incomes from Investments, and hence will be shown under “Investing Activities” section.

Dividends declared and paid to stockholders

Stockholder’s belong to Financing activities and any payment made or received to or from them is shown under “Financing activities”.

Hence, dividends paid are shown under “Financing Activities” as a Cash Outflow.

ekkarill92 answered 1 year ago

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