Chapter 11, Problem 52PSA

To determine

(a)

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:

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 depreciation on property, plant, for cash and equipment	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.

To determine

(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 cash inflow, cash outflow, or no cash effect.

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.