Question

Each of the following items must be considered in preparing a statement of cash flows. Indicate where each item is to be reported in the statement, if at all. Assume that net income is reported as \(90,000.

(a) Accounts receivable increased from \)34,000 to \(39,000 from the beginning to the end of the year.

(b) During the year, 10,000 shares of preferred stock with a par value of \)100 per share were issued at \(115 per share.

(c) Depreciation expense amounted to \)14,000, and bond premium amortization amounted to \(5,000.

(d) Land increased from \)10,000 to $30,000.

Short answer

Transaction	Section of Cash Flow
Accounts receivable increased from $34,000 to $39,000 from the beginning to the end of the year.	Cash flow from operating activities.
During the year, 10,000 shares of preferred stock with a par value of $100 per share were issued at $115 per share.	Cash flow from financing activities.
Depreciation expense amounted to $14,000, and bond premium amortization amounted to $5,000.	Cash flow from operating activities.
Land increased from $10,000 to $30,000.	Cash flow from investing activities.

Step-by-step solution

Definition of Preferred Stock

A type of stock issued by the business entity that is provided priority on the payment of dividends and liquidation is known as preferred stock.Such stock does not give voting rights.

Reporting Each Item in the Statement of Cashflow

1. An increase in accounts receivables will be reported in the cash flow from operating activities. It will be deducted from the net income of the business entity.
2. Issue of preferred stock shares will be added in the cash flow section from financing activities as it creates an inflow of cash.
3. Depreciation and amortization expenses are non-cash expenses. Therefore, they will be reported in the cash flow from operation and added to the net income.
4. An increase in the land will be deducted in the investing activity section because it will lead to an outflow of cash.