Nonoperational Assets

1. Analyze the changes in nonoperational assets to determine cash inflows and outflows from investing activities.

2. Analyze the changes in nonoperational liabilities and stockholders’ equity accounts to determine cash inflows and outflows from financing activities.

3. Recreate journal entries to measure the effect on ledger accounts where several cash transactions have occurred.

Question: For the year ended September 27, 2008, The Walt Disney Company reported the net outflow of over

$2.1 billion in cash as a result of its investing activities during that period (all numbers in millions):

The Walt Disney Company Investing Activity Cash Flows for Year Ended September 27, 2008

This portion of Disney’s statement of cash flows shows that a number of nonoperating asset transactions created

this $2.1 billion reduction in cash. Information about management decisions is readily available. For example, a

potential investor can see that officials chose to spend cash of almost $1.6 billion during this year in connection

with Disney’s parks, resorts and other property. Interestingly, this expenditure level is almost exactly the same

as the monetary amount invested in those assets in the previous year. With knowledge of financial accounting, a

portrait of a business and its activities begins to become clear.

After the cash amounts are determined, conveyance of this information does not appear particularly complicated.

How does a company arrive at the investing activity figures that are disclosed within the statement of cash flows?

Answer: In most cases, an accountant takes the ledger account for each nonoperating asset (land, buildings,

equipment, patents, trademarks, and the like) and investigates the individual transactions that took place during

the year. The amount of every cash change is identified and reported. A cash sale of land creates an inflow whereas

the acquisition of a building probably requires the payment of some cash.

The difficulty in this process can come from having to sort through multiple purchases and sales to compute

the exact amount of cash involved in each transaction. At times, determining these cash effects resembles the

work required to solve a puzzle with many connecting pieces. Often, the accountant must replicate the journal

entries that were made originally. Even then, the cash portion of these transactions may have to be determined by

mathematical logic. To illustrate, assume that a company reports the following account balances.

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