Q1. Financing activities include cash transactions that primarily affect (current asset / long-term asset / current liability / _______________ / _______________) accounts. (Circle all that apply)
Q2. Identify the transactions that are recorded in the financing section of the statement of cash flows.
(_______________/ Not) a. Issue common stock to Shareholder Adam.
(_______________/ Not) b. Pay dividends to Shareholder Adam.
(_______________/ Not) c. Purchase treasury stock.
(Financing / _______________) d. Record a 2-for-1 stock split. (Non-cash transaction)
(_______________/ Not) e. Issue note payable #1234.
(Financing / _______________) f. Pay interest on note payable #1234. (Operating activity)
(_______________/ Not) g. Repay note payable #1234.
(_______________/ Not) h. Issue preferred stock.
(_______________/ Not) i. Call a bond payable currently outstanding.
Q3. Debt transactions: In 2009 LUV had a net cash (_______________/ outflow), indicating that more debt was (_______________/ repaid), and therefore, is assuming (_______________/ less) financial risk. If debt is issued to finance growth and expansion, it is considered (_______________/ unfavorable). However, if debt is issued because cash from operating activities is insufficient, it is considered (favorable / _______________). Issuing additional debt (does / _______________) dilute earnings per share.
Q4. Capital stock transactions: In 2010 LUV had a net cash (_______________/ outflow), indicating that more stock was (_______________/ purchased). The ability to attract equity investors is (_______________/ unfavorable). A company’s own stock that is bought back with the intent to reissue to shareholders in the future is referred to as (common / preferred / _______________) stock, which (increases / _______________) shares outstanding and results in (_______________/ lower) earnings per share for current shareholders. Therefore, buying back a company’s own stock is regarded (_______________/ unfavorably) by current shareholders.
Q5. LUV is paying (_______________ / random) dividends.
Q6. Which year is LUV’s cash position most appealing to shareholders? (_______________ / 2010 / 2009) Why?