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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

The income statement of Vince Gill Company is shown below.

VINCE GILL COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2017

Sales revenue \(6,900,000

Cost of goods sold

Beginning inventory \)1,900,000

Purchases 4,400,000

Goods available for sale 6,300,000

Ending inventory 1,600,000

Cost of goods sold 4,700,000

Gross profit 2,200,000

Operating expenses

Selling expenses 450,000

Administrative expenses 700,000 1,150,000

Net income \(1,050,000

Additional information:

1. Accounts receivable decreased \)360,000 during the year.

2. Prepaid expenses increased \(170,000 during the year.

3. Accounts payable to suppliers of merchandise decreased \)275,000 during the year.

4. Accrued expenses payable decreased \(100,000 during the year.

5. Administrative expenses include depreciation expense of \)60,000.

Instructions

Prepare the operating activities section of the statement of cash flows for the year ended December 31, 2017, for Vince Gill Company, using the indirect method.

Question: (SCFโ€”Direct Method) Los Lobos Corp. uses the direct method to prepare its statement of cash flows. Los Lobosโ€™s trial balances at December 31, 2017 and 2016, are as follows.

Debits
December 31

2017
2016

Cash

\(35,000

\)32,000

Accounts receivables

33,000

30,000

Inventory

31,000

47,000

Property, plant and equipment

100,000

95,000

Unamortized bond discount

4,500

5,000

Cost of goods sold

250,000

380,000

Selling expenses

141,500

172,000

General and administration expenses

137,000

151,300

Interest expenses

4,300

2,600

Income tax expenses

20,400

61,200

\(756,700

\)976,100

Credits
December 31

2017
2016

Allowance for doubtful accounts

\(1,300

\)1,100

Accumulated depreciation โ€“ Plant assets

16,500

15,000

Account payable

25,000

15,500

Income tax payable

21,000

29,100

Deferred tax liability

5,300

4,600

8% callable bonds payable

45,000

20,000

Common stock

50,000

40,000

Paid-in-capital in excess of par

9,100

7,500

Retained earnings

44,700

64,600

Sales revenue

538,800

778,700

\(756,700

\)976,100

Additional information:

1. Los Lobos purchased \(5,000 in equipment during 2017.

2. Los Lobos allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.

3. Bad debt expense for 2017 was \)5,000, and write-offs of uncollectible accounts totalled $4,800.

Instructions

Determine what amounts Los Lobos should report in its statement of cash flows for the year ended December 31, 2017, for the following items.

(a) Cash collected from customer

(d) Cash paid for income tax

(b) Cash paid to suppliers

(e) Cash paid for selling expenses

(c) Cash paid for interest

Where can authoritative IFRS related to the statement of cash flows be found?

Question:Data for the Vince Gill Company are presented in E23-3.

Instructions

Prepare the operating activities section of the statement of cash flows using the direct method.

Question: Michaels Company had available at the end of 2017 the following information.

MICHAELS COMPANY COMPARATIVE

BALANCE SHEETS

AS OF DECEMBER 31, 2017 AND 2016


2017

2016

Cash

\(10,000

\)4,000

Accounts receivable

20,500

12,950

Short-term investments

22,000

30,000

Inventory

42,000

35,000

Prepaid rent

3,000

12,000

Prepaid insurance

2,100

900

Supplies

1,000

750

Land

125,000

175,000

Building

350,000

350,000

Accumulated depreciation โ€“ building

(105,000)

(87,500)

Equipment

525,000

400,000

Accumulated depreciation โ€“ equipment

(130,000)

(112,000)

Patents

45,000

50,000

Total assets

\(910,600

\)871,100

Account payable

\(22,000

\)32,000

Income tax payable

5,000

4,000

Salaries and wages payable

5,000

3,000

Short-term note payable

10,000

10,000

Long-term note payable

60,000

70,000

Bond payable

400,000

400,000

Premium on bond payable

20,303

25,853

Common stock

240,000

220,000

Paid-in-capital in excess of par โ€“ common stock

25,000

17,500

Retained earnings

123,297

88,747

Total liabilities and stockholders equity

\(910,600

\)871,100

MICHAELS COMPANY

INCOME STATEMENT AND DIVIDEND INFORMATION

FOR THE YEAR ENDED DECEMBER 31, 2017


Sales revenue

\(1,160,000

Cost of goods sold

748,000

Gross margin

412,000

Operating expenses

Selling expenses

\)79,200

Administrative expenses

156,700

Depreciation/Amortization expenses

40,500

Total operating expenses

276,400

Income from operations

135,600

Other revenue/expenses

Gain on sale of land

8,000

Gain on sale of short-term investment

4,000

Dividend revenue

2,400

Interest expenses

(51,750)

(37,350)

Income before tax

98,250

Income tax expenses

39,400

Net income

58,850

Dividend to common stockholders

(24,300)

To Retained earnings

$34,550

Instructions

Prepare a statement of cash flows for Michaels Company using the direct method accompanied by a reconciliation schedule. Assume the short-term investments are debt securities, classified as available-for-sale

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