1. The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted). Please answer which of the following is true if Baldwin issues bonds:
It is a source of cash, and will be shown in the investing section as an addition.
It is a source of cash and will be shown in the financing section as an addition.
It is a use of cash, and will be shown in the investing section as a subtraction.
It is a use of cash, and will be shown in the financing section as a subtraction
2. You buy a REIT for $50 a share. The REIT distributes $3.00 consisting of return of capital. You are in the 30% income tax bracket (which also applies to short term capital gains) and the 15 percent long term capital gains bracket. What is the tax implication of this distribution?
You need to pay 30% income tax when $3.00 return of capital is distributed.
You need to pay 15% capital gains tax when 3.00 retune of capital is disturbed.
When you sell your shares, no tax is imposed on $3.00 return of capital.
No tax is imposed when $3.00 return of capital is distributed.