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Question: . Classify the following items as (1) operating, (2) investing, (3) financing, or (4) significant noncash investing and financing activities, using the direct method.

(a) Cash payments to employees.

(b) Redemption of bonds payable.

(c) Sale of building at book value.

(d) Cash payments to suppliers.

(e) Exchange of equipment for furniture.

(f) Issuance of preferred stock.

(g) Cash received from customers.

(h) Purchase of treasury stock.

(i) Issuance of bonds for land.

(j) Payment of dividends.

(k) Purchase of equipment.

(l) Cash payments for operating expenses.

Short Answer

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Answer

Transaction

Classification

(a) Cash payments to employees

(1) Operating

(b) Redemption of bonds payable

(3) Financing

(c) Sale of building at book value

(2) Investing

(d) Cash payments to suppliers

(1) Operating

(e) Exchange of equipment for furniture

(4) significant noncash investing and financing activities

(f) Issuance of preferred stock

(3) Financing

(g) Cash received from customers

(1) Operating

(h) Purchase of treasury stock

(3) Financing

(i) Issuance of bonds for land

(4) significant noncash investing and financing activities

(j) Payment of dividends

(3) Financing

(k) Purchase of equipment

(2) Investing

(l) Cash payments for operating expenses

(1) Operating

Step by step solution

01

Definition of Cash Flow Statement

The statement prepared by the business entity providing the information regarding all the transactions that increase or decrease the cash balance is known as the cash flow statement. Such a statement is prepared in three sections.

02

Classification of items

  1. Operating activity includes all the transactions that are related to daily business activities. For example, payments made to suppliers, receipt of cash from customers, and payment of any operating expense.
  2. Financing activities: All those activities that include the issue of securities either equity or debt are included in the financing activities.
  3. Investing activities: All those activities that involve the purchase and sale of the asset against cash are reported in the investing activities section.
  4. Significant non-cash investing and financing activities: Such activities do not involve cash but involve the issue of securities against the acquisition of asset.

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Most popular questions from this chapter

Question: Why is it desirable to use a worksheet when preparing a statement of cash flows? Is a worksheet required to prepare a statement of cash flows?

Hendrickson Corporation reported net income of \(50,000 in 2017. Depreciation expense was \)17,000. The following working capital accounts changed.

Accounts receivable $11,000 increase

Available-for-sale debt securities 16,000 increase

Inventory 7,400 increase

Nontrade note payable 15,000 decrease

Accounts payable 12,300 increase

Compute net cash provided by operating activities.

Question: (Analysis of Improper SCF) The following statement was prepared by Maloney Corporationโ€™s accountant.


MALONEY CORPORATION

STATEMENT OF SOURCES AND APPLICATION OF CASH

FOR THE YEAR ENDED SEPTEMBER 30, 2017

Sources of cash

Net income

\(111,000

Depreciation and depletion

70,000

Increase in long-term debt

179,000

Changes in current receivables and inventories, less current liabilities (excluding current maturities of long-term debt)

14,000

\)374,000

Application of cash

Cash dividend

\(60,000

Expenditure for property, plant, and equipment

214,000

Investments and other uses

20,000

Change in cash

80,000

\)374,000

The following additional information relating to Maloney Corporation is available for the year ended September 30, 2017.

  1. Salaries and wages expense attributable to stock option plans was \(25,000 for the year.
  2. Net expenditure:

Expenditures for property, plant, and equipment

\)250,000

Proceeds from retirements of property, plant, and equipment

36,000

Net expenditures

\(214,000

  1. A stock dividend of 10,000 shares of Maloney Corporation common stock was distributed to common stockholders on April 1, 2017, when the per share market price was \)7 and par value was \(1.
  2. On July 1, 2017, when its market price was \)6 per share, 16,000 shares of Maloney Corporation common stock were issued in exchange for 4,000 shares of preferred stock.
  3. Depreciation expenses:

Depreciation expenses

\(65,000

Depletion expenses

5,000

\)70,000

  1. Net increase:

Increase in long-term debt

\(620,000

Less: Redemption of debt

441,000

Net increases

\)179,000

Instructions

(a) In general, what are the objectives of a statement of the type shown above for Maloney Corporation? Explain.

(b) Identify the weaknesses in the form and format of Maloney Corporationโ€™s statement of cash flows without reference to the additional information. (Assume adoption of the indirect method.)

(c) For each of the six items of additional information for the statement of cash flows, indicate the preferable treatment and explain why the suggested treatment is preferable.

Question: The board of directors of Tirico Corp. declared cash dividends of \(260,000 during the current year. If dividends payable was \)85,000 at the beginning of the year and $90,000 at the end of the year, how much cash was paid in dividends during the year?

At January 1, 2017, Eikenberry Inc. had accounts receivable of \(72,000. At December 31, 2017, accounts receivable is \)54,000. Sales revenue for 2017 total $420,000. Compute Eikenberryโ€™s 2017 cash receipts from customers.

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