Derek Smith is in the process of preparing a preliminary statement of cash flows using the direct method. As part of his due diligence, he has identified several items that may or may not be used in preparing the statement of cash flows, including:
Item 1: A printing machine was purchased using the proceeds from a stock issuance.
Item 2: Convertible bonds were converted to common stock.
Item 3: The company settled a pending lawsuit, receiving a lump-sum payment.
Item 4: A delivery truck was obtained via a finance lease obligation.
Which of the items identified by Smith would directly affect the statement of cash flows?
A.
Item 1
B.
Item 2
C.
Item 3
D.
Item 4