
Concept explainers
(a)
In budgetary bookkeeping, a cash flow statement, otherwise called statement of
To discuss:
Indicate whether each activity should be classified as a cash flow from operating activities, cash flow from investing activities, cash flow from financing activities, or noncash investing and financing activity. Assume that CTT uses the indirect method.

Answer to Problem 52PSA
All item explanation below:
Particular | Activity | Reasons |
a. Purchased property, plant, and equipment | Investing activity | Purchase and sale of fixed assets which is long term purpose, is identified in the investing activity. |
b. Purchased merchandise inventory for cash | Operating activity | Purchase of raw material and sold the finished goods is the normal activity and is to be considered in the operating activity. |
c. Recorded |
Non-cash activity | As per the indirect method, depreciation is the non-cash item and added back in the operating activity. |
d. Issued common stock for cash | Financial activity | Taking borrowing from another institution or persons which is related outside the firm. |
e. Purchased merchandise inventory on credit | Non-cash activity | Inventory purchase on the credit basic no cash yet outflow. |
f. Collected cash sales from customers | Operating activity | Sale of finished goods is the normal business activity, hence related to operating activity. |
g. Paid cash dividends | Financial activity | Paid cash to the shareholder and shareholder belong to the share and share related to the financial activity. |
h. Purchased a 2-year insurance policy for cash mortgage | Operating activity | Cash paid for advance for the insurance. Adding in the operating activity and balance amount shown in the head of current assets. |
i. Paid salaries of employees | Operating activity | Salary paid to the employees is the normal activity and hence this activity considered in the operating activity. |
j. Borrowed cash by issuing a note payable | Financial activity | Loan taken or repayment of loan all item which is long-term must be considered in the financial activity. |
k. Sold property, plant, and equipment for cash | Investing activity | Purchase and sale of long-term term assets all must be considered in the investing activity. |
1. Paid cash for principal amount of mortgage | Financial activity | Loan taken or repayment of loan all item which is long-term must be considered in the financial activity. |
m. Paid interest on mortgage | Financial activity | Interest paid on the loan is also considered in the financial activity. |
Explanation of Solution
All item explanation below:
Particular | Reasons |
a. Purchased property, plant, and equipment | Purchase and sale of fixed assets which is long term purpose, is identified in the investing activity. |
b. Purchased merchandise inventory for cash | Purchase of raw material and sold the finished goods is the normal activity and is to be considered in the operating activity. |
c. Recorded depreciation on property, plant, for cash and equipment | As per the indirect method, depreciation is the non-cash item and added back in the operating activity. |
d. Issued common stock for cash | Taking borrowing from another institution or persons which is related outside the firm. |
e. Purchased merchandise inventory on credit | Inventory purchase on the credit basic no cash yet outflow. |
f. Collected cash sales from customers | Sale of finished goods is the normal business activity, hence related to operating activity. |
g. Paid cash dividends | Paid cash to the shareholder and shareholder belong to the share and share related to the financial activity. |
h. Purchased a 2-year insurance policy for cash mortgage | Cash paid for advance for the insurance. Adding in the operating activity and balance amount shown in the head of current assets. |
i. Paid salaries of employees | Salary paid to the employees is the normal activity and hence this activity considered in the operating activity. |
j. Borrowed cash by issuing a note payable | Loan taken or repayment of loan all item which is long-term must be considered in the financial activity. |
k. Sold property, plant, and equipment for cash | Purchase and sale of long-term term assets all must be considered in the investing activity. |
1. Paid cash for principal amount of mortgage | Loan taken or repayment of loan all item which is long-term must be considered in the financial activity. |
m. Paid interest on mortgage | Interest paid on the loan is also considered in the financial activity. |
(b)
In budgetary bookkeeping, a cash flow statement, otherwise called statement of cash flows, is a fiscal report that demonstrates how changes in monetary record records and pay influence cash and cash reciprocals, and separates the examination to operating, investing, and financing activities.
To discuss:
For each activity that is reported on the statement of cash flows, indicate whether it produces a

Answer to Problem 52PSA
Particular | Cash activity |
a. Purchased property, plant, and equipment | Outflow |
b. Purchased merchandise inventory for cash | Outflow |
c. Recorded depreciation on property, plant, for cash and equipment | No cash flow |
d. Issued common stock for cash | Inflow |
e. Purchased merchandise inventory on credit | No cash flow |
f. Collected cash sales from customers | Inflow |
g. Paid cash dividends | Outflow |
h. Purchased a 2-year insurance policy for cash mortgage | Outflow |
i. Paid salaries of employees | Outflow |
j. Borrowed cash by issuing a note payable | Inflow |
k. Sold property, plant, and equipment for cash | Inflow |
1. Paid cash for principal amount of mortgage | outflow |
m. Paid interest on mortgage | outflow |
Explanation of Solution
The following activity explanation below:
Particular | Cash activity | Reasons |
a. Purchased property, plant, and equipment | Outflow | Purchase and sale of fixed assets which is long term purpose, is identified in the investing activity. |
b. Purchased merchandise inventory for cash | Outflow | Purchase of raw material and sold the finished goods is the normal activity and is to be considered in the operating activity. |
c. Recorded depreciation on property, plant, for cash and equipment | No cash flow | As per the indirect method, depreciation is the non-cash item and added back in the operating activity. |
d. Issued common stock for cash | Inflow | Taking borrowing from another institution or persons which is related outside the firm. |
e. Purchased merchandise inventory on credit | No cash flow | Inventory purchase on the credit basic no cash yet outflow. |
f. Collected cash sales from customers | Inflow | Sale of finished goods is the normal business activity, hence related to operating activity. |
g. Paid cash dividends | Outflow | Paid cash to the shareholder and shareholder belongs to the share and share related to the financial activity. |
h. Purchased a 2-year insurance policy for cash mortgage | Outflow | Cash paid for advance for the insurance. Adding in the operating activity and balance amount shown in the head of current assets. |
i. Paid salaries of employees | Outflow | Salary paid to the employees is the normal activity and hence this activity considered in the operating activity. |
j. Borrowed cash by issuing a note payable | Inflow | Loan taken or repayment of loan all item which is long-term must be considered in the financial activity. |
k. Sold property, plant, and equipment for cash | Inflow | Purchase and sale of long-term term assets all must be considered in the investing activity. |
1. Paid cash for principal amount of mortgage | outflow | Loan taken or repayment of loan all item which is long-term must be considered in the financial activity. |
m. Paid interest on mortgage | outflow | Interest paid on the loan is also considered in the financial activity. |
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Chapter 11 Solutions
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