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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

The 2018 comparative balance sheet and income statement of Appleton Group, Inc. follow. Appleton disposed of a plant asset at book value during 2018

Prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method. A plant asset was disposed of for \(0. The cost and accumulated depreciation of the disposed asset was \)11,600. There were no sales of land, no retirement of common stock, and no treasury stock transactions. Assume plant asset and land acquisitions were for cash.

Accountants for Benson, Inc. have assembled the following data for the year ended December 31, 2018:

2018 2017 Current Assets: Cash \( 105,100 \) 18,000 Accounts Receivable 64,400 68,900 Merchandise Inventory 86,000 82,000 Current Liabilities: Accounts Payable 58,000 56,100 Income Tax Payable 14,700 16,900

Transaction Data for 2018:

Issuance of common stock for cash \( 37,000

Payment of notes payable \) 47,100

Depreciation expense 24,000

Payment of cash dividends 53,000

Purchase of equipment with cash 69,000

Issuance of notes payable to borrow cash 68,000

Acquisition of land by issuing long-term notes payable 123,000

Gain on sale of building 4,500

Book value of building sold 61,000

Net income 66,000

Prepare Benson鈥檚 statement of cash flows using the indirect method. Include an accompanying schedule of non-cash investing and financing activities

Preparing the direct method statement of cash flows Red Toy Company reported the following comparative balance sheet:

Requirements

1. Compute the collections from customers during 2018 for Red Toy Company. Sales Revenue totaled \(134,000.

2. Compute the payments for inventory during 2018. Cost of Goods Sold was \)79,000.

Question: Computing cash flows from investing and financing activities Use the data in Short Exercise S14-5 to complete this exercise. Prepare Winding Road Cellular鈥檚 statement of cash flows using the indirect method for the year ended April 30, 2018. Assume beginning and ending Cash are \(48,000 and \)52,200, respectively.

Using a spreadsheet to prepare the statement of cash flows鈥攊ndirect method Use the Boost Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method.
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