Question

Marriott International, Inc., is a leading global lodging company, with more than 6,000 properties in 122 countries. Information adapted from the company’s recent annual statement of cash flows indicates the following investing and financing activities during that year (simplified, in millions of dollars):
a. Additional borrowing from banks $ 1,482
b. Purchase of investments 1
c. Sale of assets and investments (assume sold at cost) 218
d. Issuance of stock 34
e. Purchases of property, plant, and equipment 199
f. Payment of debt principal 326
g. Dividends paid 374
h. Receipt of principal payment on a note receivable 67

Required:
For each of these, select whether the activity is investing or financing and the direction of the effects on cash flows (+ for increases cash; - for decreases cash).

Activity Type of activity Effect on cash
Additional borrowing from banks
purchase of investments
Sale of assets and investments (assume sold at cost)
Issuance of stock
Purchases of property plant, and equipment
payment of debt principal
Dividends paid
Receipt of principal payment on a note receivable

Answer 1

Answer:

Marriott International, Inc.

Selection of whether activity is investing or financing and the direction of the effects on cash flows (+ for increases cash; - for decreases cash):

Activity                                               Type of activity         Effect on cash

                                                                                         (millions of dollars)

a. Additional borrowing from banks      financing              + $1,482

b. Purchase of investments                   investing               - $1

c. Sale of assets and investments        investing              + $218

 (assume sold at cost)

d. Issuance of stock                               financing              + $34

e. Purchases of property plant,

 and equipment                                    investing               - $199

f. Payment of debt principal                  financing              - $326

g. Dividends paid                                   financing              - $374

h. Receipt of principal payment           financing              + $67

 on a note receivable

Explanation:

When Marriott International, Inc. prepares its statement of cash flows, it usually classifies the cash flow activities into three main categories.  One is the operating activities section.  Two is the investing activities section.  And the third one is financing activities.  Sometimes, the reconciliation to the cash balance is added, including some non-cash flow activities.  The purpose of preparing the statement of cash flows in such sections is to group relevant activities together to enable users of the financial statements to make informed decisions.  It is very important to make the separation since investing and financing activities are not the normal business of the entity, unless it is into such businesses like investment and finance houses and banks.