Question

Novak Corporation is preparing its 2017 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak’s 2017 statement of cash flows.

Code Letter Effect

A Added to net income in the operating section

D Deducted from net income in the operating section

R-I Cash receipt in investing section

P-I Cash payment in investing section

R-F Cash receipt in financing section

P-F Cash payment in financing section

N Noncash investing and financing activity

(a)Purchase of land and building

(b)Decrease in accounts receivable

(c)Issuance of stock.

(d)Depreciation expense.

(e)Sale of land at book value.

(f)Sale of land at a gain.

(g)Payment of dividends.

(h)Increase in accounts receivable.

(i)Purchase of available-for-sale debt investment

(j)Increase in accounts payable.

(k)Decrease in accounts payable.

(l)Loan from bank by signing note

(m)Purchase of equipment using a note

(n)Increase in inventory

(o)Issuance of bonds.

(p)Redemption of bonds payable.

(q)Sale of equipment at a loss.

(r)Purchase of treasury stock.

Short answer

A cash flow statement separates the transactions according to their nature, such that if a transaction is related to the main production, then it is under operation, and if the transaction is related to finance, then it is under financing activity.

Step-by-step solution

Meaning of Cash Flow Statement

It is one of the reporting methods of cash transactions in a separate statement that records only business transactions where the monetary term is included. It helps to determine the flow of cash in the business.

Indication of the below transactions

Items	Code	Effect
Purchase of land and building	P-I	Cash payment in investing section.
Decrease in accounts receivable	A	Added to net income in the operating section.
Issuance of stock.	R-F	Cash receipt in financing section.
Depreciation expense	A	Added to net income in the operating section.
Sale of land at book value	R-I	Cash receipt in investing section.
Sale of land at a gain.	R-I D	Cash receipt in investing section. Deducted from net income in the operating section
Payment of dividends.	P-F	Cash payment in financing section.
Increase in accounts receivable.	D	Deducted from net income in the operating section.
Purchase of available-for-sale debt investment	P-I	Cash payment in investing section.
Increase in accounts payable.	A	Added to net income in the operating section.
Decrease in accounts payable	D	Deducted from net income in the operating section.
Loan from bank by signing note	R-F	Cash receipt in financing section.
Purchase of equipment using a note	N	Non-cash investing and financing activity.
Increase in inventory	D	Deducted from net income in the operating section.
Issuance of bonds.	R-F	Cash receipt in financing section.
Redemption of bonds payable.	P-F	Cash payment in financing section.
Sale of equipment at a loss.	R-I A	Cash receipt in investing section. Added to net income in the operating section.
Purchase of treasury stock.	P-F	Cash payment in financing section.