Q 23.21: Last year, Alpha Corporation spent $250,000 to repurchase 15,000 shares of its own outstanding common stock. The company also paid $40,000 in interest on a construction loan that it had obtained from its bank. How should these transactions be reflected on Alpha’s annual statement of cash flows, and why? A : The two transactions should be reported in separate sections of the statement because one involves long-term assets while the other involves long-term liability. Specifically, Alpha should record a $250,000 cash outflow in the investing section and a $40,000 cash outflow in the financing section. B : The two transactions should be reported in separate sections of the statement because one involves a change in equity while the other involves a change in income. Specifically, Alpha should record a $250,000 cash outflow in the financing section and a $40,000 cash outflow in the operating section. C : Both transactions should be reported in the operating activities section of the statement because both involve alterations in the company’s income. Because the two transactions are unrelated, they should be recorded separately—as a $250,000 cash outflow from the stock repurchase and a $40,000 cash outflow from the interest payment. D : Both transactions should be reported in the financing activities section of the statement because both involve long-term liability and/or equity items. Because the two transactions are unrelated, they should be recorded separately—as a $250,000 cash outflow from the stock repurchase and a $40,000 cash outflow from the interest payment.

Question

Q 23.21:

Last year, Alpha Corporation spent $250,000 to repurchase 15,000 shares of its own outstanding common stock. The company also paid $40,000 in interest on a construction loan that it had obtained from its bank. How should these transactions be reflected on Alpha’s annual statement of cash flows, and why?

A :

The two transactions should be reported in separate sections of the statement because one involves long-term assets while the other involves long-term liability. Specifically, Alpha should record a $250,000 cash outflow in the investing section and a $40,000 cash outflow in the financing section.
B :

The two transactions should be reported in separate sections of the statement because one involves a change in equity while the other involves a change in income. Specifically, Alpha should record a $250,000 cash outflow in the financing section and a $40,000 cash outflow in the operating section.
C :

Both transactions should be reported in the operating activities section of the statement because both involve alterations in the company’s income. Because the two transactions are unrelated, they should be recorded separately—as a $250,000 cash outflow from the stock repurchase and a $40,000 cash outflow from the interest payment.
D :

Both transactions should be reported in the financing activities section of the statement because both involve long-term liability and/or equity items. Because the two transactions are unrelated, they should be recorded separately—as a $250,000 cash outflow from the stock repurchase and a $40,000 cash outflow from the interest payment.