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Chapter 14: Q17E (page 775)

Classifying transactions on the statement of cash flows鈥攊ndirect method Consider the following transactions:

Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.

Short Answer

Expert verified
  1. Financing
  2. Investing
  3. Operating
  4. Investing
  5. Operating
  6. Financing
  7. Non-cash
  8. Investing
  9. Financing
  10. Non-cash
  11. Investing

Step by step solution

01

Step-by-Step SolutionStep 1: Classification of operating activities

c. Sales revenue of $88,000 is an operating activity.

e. Depreciation expense of $6,800 is an operating activity.

02

Classification of investing activities

b. Treasury stock sold for $16,500 is an investing activity.

d. Land purchased for cash $103,000 is an investing activity.

h. Equipment sold for $9,600 is an investing activity.

k. Loss of $1,800 on disposal of equipment is an investing activity.

03

Classification of financing activities

a. Issuance of common stock for cash of $72,000 is a financing activity.

f. Cash paid for dividends is a financing activity.

i. Bonds payable of $51,000 is a financing activity

04

Classification of non-cash activities

g. Land in exchange of notes payable is a non-cash activity.

j. Building in exchange of notes payable is a non-cash activity.

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Most popular questions from this chapter

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)

Question: Preparing operating activities cash flow鈥攄irect method

The accounting records of Four Seasons Parts reveal the following:

Payment of salaries and wages \( 34,000

Net income \) 21,000

Depreciation expense 10,000

Payment of income tax 16,000

Payment of interest 17,000

Collection of dividend revenue 5,000

Payment of dividends 5,000

Payment to suppliers 51,000

Collections from customers 116,000

Compute cash flows from operating activities using the direct method for the year ended December 31, 2018.

Question: What is free cash flow, and how is it calculated?

Preparing the statement of cash flows鈥攊ndirect method with non-cash transactions the 2018 income statement and comparative balance sheet of Sweet Valley, Inc. follow:

Additionally, Sweet Valley purchased land of \(20,900 by financing it 100% with long-term notes payable during 2018. During the year, there were no sales of land, no retirements of stock, and no treasury stock transactions. A plant asset was disposed of for \)0. The cost and the accumulated depreciation of the disposed asset were $13,240. Plant asset was acquired for cash.

Requirements

1. Prepare the 2018 statement of cash flows, formatting operating activities by the indirect method.

2. How will what you learned in this problem help you evaluate an investment?

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.
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