Question

Classify the following cash flows as either operating (O), investing (I), or financing (F) activities.

1. Sold long-term investments for cash.

2. Received cash payments from customers.

3. Paid cash for wages and salaries.

4. Purchased inventories for cash.

5. Paid cash dividends.

6. Issued common stock for cash.

7. Received cash interest on a note.

8. Paid cash interest on outstanding notes.

9. Received cash from sale of land at a loss.

10. Paid cash for property taxes on building.

Short answer

Transactions	Activities
1	Investing
2	Operating
3	Operating
4	Operating
5	Financing
6	Financing
7	Investing
8	Operating
9	Investing
10	Operating

Step-by-step solution

Meaning of Cash Flow Statement

A cash flow statement is a statement prepared by the companies to show the cash flow, i.e., inflow and outflow, into separate business activities like operating, investing, and financing.

Sold Long-term Investments for cash

The sale of long-term investments will come underinvesting activities as investing activities includes all the activities which lead to the receipts and payments of cash in exchange for fixed assets or investments.

Received Cash payments from customers

The cash received from customers will come under the operating activities because the operating activities include day-to-day business activities.

Paid cash wages and salaries

The payment of wages and salaries will also come under the operating activities as it is a regular business activity, and the movement of cash is involved.

Purchases Inventories for cash

The cash paid to purchase inventories will also come under the operating activities.

Paid cash dividends

The payment of dividends will come under the financing activity as it is related to the company's finance.

Issued common stock for cash

The company issues Common stocks to raise additional capital for the business. All the transactions related to raising capital or repayment to investors comes under financing activities. Hence, the issuance of common stock will come under financing activities.

Received cash interest

The interest received in cash will come under the investing activity as it is income from the company's investment.

Paid cash interest on outstanding notes

The cash flows from the operating operations portion of the cash flow statement contain information about interest payments made on notes payable. A company's net income includes the interest charge because the indirect method is the most common way companies report the cash flows from operating operations.

Received cash from the sale of land at a loss

The cash received from the sale of land at a loss will come under investing activities as all the receipts and payments of cash because of the purchase and sale of fixed assets and investments come under investing activities.

Paid cash for property tax on the building

The property tax paid on the building will come under operating activities as it was already deducted at the time of computation of net income.