Chapter 11, Problem 11.5S

(Learning Objective 2: Distinguish among operating, financing, and investing activities—indirect method) Crater HVAC Systems is preparing its statement of cash flows (indirect method) for the year ended March 31, 2018. To follow, in no particular order, is a list of items that will be used in preparing the company’s statement of cash flows. Identify each item as an operating activity addition to net income; an operating activity subtraction from net income; an investing activity; a financing activity; or an activity that is not used to prepare the cash flows statement.

1. a. Increase in inventory
2. b. Issuance of common stock
3. c. Decrease in accrued liabilities
4. d. Net income
5. e. Decrease in prepaid expense
6. f. Collection of cash from customers
7. g. Purchase of equipment with cash
8. h. Retained earnings
9. i. Payment of dividends
10. j. Increase in accounts payable
11. k. Decrease in accounts receivable
12. l. Gain on sale of a building
13. m. Loss on sale of land
14. n. Depreciation expense