Classification of Activities for Carnival Corporation Carnival Corporation & plc
ID: 2422965 • Letter: C
Question
Classification of Activities for Carnival Corporation
Carnival Corporation & plc is one of the largest cruise companies in the world with such well-known brands as Carnival Cruise Lines, Holland America Line, and Princess Cruises. Classify each of the following items found on the company's 2011 statement of cash flows according to whether it would appear in the Operating Activities section, in the Investing Activities section, or in the Financing Activities section. The company uses the indirect method in the Operating Activities section of its statement.
1. Dividends paid _________________ 2. Proceeds from issuance of other long-term debt _________________ 3. Depreciation and amortization _________________ 4. Additions to property and equipment _________________ 5. Purchases of treasury stock _________________ 6. Net income _________________Explanation / Answer
1. Dividends paid - Financing Activities (When an equity is issued by an entity, it is raising the money to fund its operational requirements. Hence, proceeds from equity would be part of Financing activities. When the company pays back dividend to the equity share holders, it is a cost relating to equity capital which is a financing activity. Thus dividend paid would be classified under Financing Activities)
2. Proceeds from issuance of Long term Debt - Financing Activities (Debt is basically raised to finance its working capital or capital expenditure requirements. Hence, issuance of debt would be classified under Financing activities)
3. Depreciation and Amortization - Operating Activities (Depreciation is a non cash item. However it would appear in operating activities as an adjustment to the net profit to derive the cash flow from operations)
4. Additions to Property and Equipment - Investing Activities (Fixed asset is primarily an investment in an asset to yield return to the business. Hence, it is an investing activity)
5. Purchase of Treasury Stocks - Investing Activities (Investment in Treasury stocks is short term investment to get return from the stocks. Hence Investing activity)
6. Net Income - Operating Activities (Net income represents profit from business operations. Hence operating activity)