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Chapter 14: Q14-3SE (page 770)

Question: Classifying items on the indirect statement of cash flows

Destiny Corporation is preparing its statement of cash flows by the indirect method. Destiny has the following items for you to consider in preparing the statement:

a. Increase in accounts payable

b. Payment of dividends

c. Decrease in accrued liabilities

d. Issuance of common stock

e. Gain on sale of building

f. Loss on sale of land

g. Depreciation expense

h. Increase in merchandise inventory

i. Decrease in accounts receivable

j. Purchase of equipment

Identify each item as a(n): 鈥� Operating activity鈥攁ddition to net income (O+) or subtraction from net income (O-) 鈥� Investing activity鈥攃ash inflow (I+) or cash outflow (I-) 鈥� Financing activity鈥攃ash inflow (F+) or cash outflow (F-) 鈥� Activity that is not used to prepare the indirect statement of cash flows (N)

Short Answer

Expert verified

Answer

  1. Operating (O+)
  2. Financing (F-)
  3. Operating (O-)
  4. Financing (F-)
  5. Operating (O-)
  6. Operating (O+)
  7. Operating (O+)
  8. Operating (O-)
  9. Operating (O+)
  10. Investing (I-)

Step by step solution

01

Classification of activities

Transaction

Activity

a. Increase in accounts payable

Operating (O)

b. Payment of dividends

Financing (F)

c. Decrease in accrued liabilities

Operating (O)

d. Issuance of common stock

Financing (F)

e. Gain on sale of building

Operating (O)

f. Loss on sale of land

Operating (O)

g. Depreciation expense

Operating (O)

h. Increase in merchandise inventory

Operating (O)

i. Decrease in accounts receivable

Operating (O)

i. Decrease in accounts receivable

Investing (I)

02

Treatment of each transaction

Transaction

Activity

Treatment

a. Increase in accounts payable

Operating (O)

addition to net income (O+)

b. Payment of dividends

Financing (F)

cash outflow (F-)

c. Decrease in accrued liabilities

Operating (O)

subtraction from net income (O-)

d. Issuance of common stock

Financing (F)

cash outflow (F-)

e. Gain on sale of building

Operating (O)

subtraction from net income (O-)

f. Loss on sale of land

Operating (O)

addition to net income (O+)

g. Depreciation expense

Operating (O)

addition to net income (O+)

h. Increase in merchandise inventory

Operating (O)

subtraction from net income (O-)

i. Decrease in accounts receivable

Operating (O)

addition to net income (O+)

j. Purchase of equipment

Investing (I)

cash outflow (I-)

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Most popular questions from this chapter

Question: Describing the purposes of the statement of cash flows Financial statements all have a goal.

The statement of cash flows does as well. Describe how the statement of cash flows helps investors and creditors perform each of the following functions:

a. Predict future cash flows.

b. Evaluate management decisions.

c. Predict the ability to make debt payments to lenders and pay dividends to stockholders.

Preparing the statement of cash flows-indirect statement This problem continues the Canyon Canoe Company situation from Chapter 13. Canyon Canoe Company's comparative balance sheet is shown below. 2019 amounts are assumed, but include several transactions from prior chapters.

Additional data fellow:

  1. The income statement for 2019 included the following items: Net income, \(417,000. Depreciation expense for the year, \)34,330. Amortization on the bonds payable, \(254.
  2. There were no disposals of property, plant and equipment during this year. All acquistions of PP&E were for cash except the land, which was acquired by issuing preferred stock.
  3. The company issued bonds payable with a face value of \)210,000, receiving cash of \(208,476.
  4. The company distributed 4,000 shares of common stock in a stock dividend when the market value was \)4.50 per share. All other dividends were paid in cash.
  5. The common stock, except for the stock dividend, was issued for cash.
  6. The cash receipt from the note payable in 2019 is considered a financing activity because it does not relate to operations. Requirements Prepare the statement of cash flows for the year ended December 31, 2019, using the indirect method.

Question: Muench, Inc.鈥檚 accountant has partially completed the spreadsheet for the statement of cash flows. Fill in the remaining missing information.

Question: Classifying items on the indirect statement of cash flows

The statement of cash flows categorizes like transactions for optimal reporting. Identify each item as a(n):

鈥� Operating activity鈥攁ddition to net income (O+) or subtraction from net income (O-)

鈥� Investing activity鈥攃ash inflow (I+) or cash outflow (I-)

鈥� Financing activity鈥攃ash inflow (F+) or cash outflow (F-)

鈥� Non-cash investing and financing activity (NIF)

鈥� Activity that is not used to prepare the indirect statement of cash flows (N)

The indirect method is used to report cash flows from operating activities.

  1. Loss on sale of land.
  2. Acquisition of equipment by issuance of note payable.
  3. Payment of long-term debt.
  4. Acquisition of building by issuance of common stock.
  5. Increase in Salaries Payable.
  6. Decrease in Merchandise Inventory.
  7. Increase in Prepaid Expenses.
  8. Decrease in Accrued Liabilities.
  9. Cash sale of land (no gain or loss).
  10. Issuance of long-term note payable to borrow cash.
  11. Depreciation Expense.
  12. Purchase of treasury stock.
  13. Issuance of common stock.
  14. Increase in Accounts Payable.
  15. Net income.
  16. Payment of cash dividend

Question: Classifying items on the statement of cash flows Cash flow items

must be categorized into one of four categories. Identify each item as operating (O), investing (I), financing (F), or non-cash (N).

a. Cash purchase of merchandise inventory

b. Cash payment of dividends

c. Cash receipt from the collection of long-term notes receivable

d. Cash payment for income taxes

e. Purchase of equipment in exchange for notes payable

f. Cash receipt from the sale of land

g. Cash received from borrowing money

h. Cash receipt for interest income

i. Cash receipt from the issuance of common stock

j. Cash payment of salaries
See all solutions

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