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Chapter 14: Q18E (page 775)

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

Short Answer

Expert verified

Answer

  1. Operating (O)
  2. Non-cash (NIF)
  3. Financing (F)
  4. Non-cash (NIF)
  5. Operating (O)
  6. Operating (O)
  7. Operating (O)
  8. Operating (O)
  9. Investing (I)
  10. Financing (F)
  11. Operating (O)
  12. Financing (F)
  13. Financing (F)
  14. Operating (O)
  15. Operating (O)
  16. Financing (F)

Step by step solution

01

Meaning of Cash Flow Statement 

A cash flow statement is a statement prepared by the business entities that shows the sources from where the cash comes inand the usage due to which cash goes out.

02

Classification of activities

Transaction

Activity

a. Loss on sale of land.

Operating (O)

b. Acquisition of equipment by issuance of note payable.

Non-cash (NIF)

c. Payment of long-term debt.

Financing (F)

d. Acquisition of building by issuance of common stock.

Non-cash (NIF)

e. Increase in Salaries Payable.

Operating (O)

f. Decrease in Merchandise Inventory.

Operating (O)

g. Increase in Prepaid Expenses.

Operating (O)

h. Decrease in Accrued Liabilities.

Operating (O)

i. Cash sale of land (no gain or loss).

Investing (I)

j. Issuance of long-term note payable to borrow cash.

Financing (F)

k. Depreciation Expense.

Operating (O)

l. Purchase of treasury stock.

Financing (F)

m. Issuance of common stock.

Financing (F)

n. Increase in Accounts Payable.

Operating (O)

o. Net income.

Operating (O)

p. Payment of cash dividend

Financing (F)

03

Treatment of each transaction

Transaction

Activity

Treatment

a. Loss on sale of land.

Operating (O)

cash outflow (O-)

b. Acquisition of equipment by issuance of note payable.

Non-cash (NIF)

Non-cash investing and financing activity (NIF)

c. Payment of long-term debt.

Financing (F)

cash outflow (F-)

d. Acquisition of building by issuance of common stock.

Non-cash (NIF)

Non-cash investing and financing activity (NIF)

e. Increase in Salaries Payable.

Operating (O)

addition to net income (O+)

f. Decrease in Merchandise Inventory.

Operating (O)

subtraction from net income (O-)

g. Increase in Prepaid Expenses.

Operating (O)

addition to net income (O+)

h. Decrease in Accrued Liabilities.

Operating (O)

subtraction from net income (O-)

i. Cash sale of land (no gain or loss).

Investing (I)

cash inflow (I+)

j. Issuance of long-term note payable to borrow cash.

Financing (F)

cash inflow (F+)

k. Depreciation Expense.

Operating (O)

addition to net income (O+)

l. Purchase of treasury stock.

Financing (I)

cash outflow (F-)

m. Issuance of common stock.

Financing (F)

cash inflow (F+)

n. Increase in Accounts Payable.

Operating (O)

addition to net income (O+)

o. Net income.

Operating (O)

-

p. Payment of cash dividend

Financing (F)

cash outflow (F-)

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Most popular questions from this chapter

Classifying cash flow items Consider the following transactions:

  1. Purchased equipment for \(130,000 cash.
  2. Issued \)14 par preferred stock for cash.
  3. Cash received from sales to customers of \(35,000.
  4. Cash paid to vendors, \)17,000.
  5. Sold building for \(19,000 gain for cash.
  6. Purchased treasury stock for \)28,000.
  7. Retired a notes payable with 1,250 shares of the company鈥檚 common stock.

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

Preparing a statement of cash flows using the direct method Jelly Bean, Inc. began 2018 with cash of \(58,000. During the year, Jelly Bean earned revenue of \)595,000 and collected \(614,000 from customers. Expenses for the year totaled \)427,000, of which Jelly Bean paid \(212,000 in cash to suppliers and \)205,000 in cash to employees. Jelly Bean also paid \(148,000 to purchase equipment and a cash dividend of \)57,000 to its stockholders during 2018. Prepare the company鈥檚 statement of cash flows for the year ended December 31, 2018. Format operating activities by the direct method.

Question: Computing cash flows from operating activities鈥攊ndirect method

DVR Equipment, Inc. reported the following data for 2018:

Income Statement:

Net Income $ 43,000

Depreciation Expense 6,000

Balance Sheet:

Increase in Accounts Receivable 6,000

Decrease in Accounts Payable 2,000

Compute DVR鈥檚 net cash provided by operating activities鈥攊ndirect method.

Computing operating activities cash flow鈥攊ndirect method

The accounting records of CD Sales, Inc. include the following accounts: Account Beginning Balance Ending Balance Cash \( 7,500 \) 6,500 Accounts Receivable 21,000 17,500 Merchandise Inventory 20,000 30,000 Accounts Payable 15,000 19,000 Accumulated Depreciation鈥� Equipment

2,000 Depr. Exp.

56,000 Jul. 1

58,000 Jul. 31

Retained Earnings

Dividends 15,000

63,000 Jul. 1

50,000 Net Inc.

98,000 Jul. 31

Compute CD鈥檚 net cash provided by (used for) operating activities during July 2018. Use the indirect method.

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.
See all solutions

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