Chapter 12, Problem 1QS

To determine

Cash Flow Statement:

Cash flow statement is that statement in which, transaction related to cash are recorded. It is mandatory report and included in the financial statement of the company. It is divided into three parts operating activities, investing activity, and financial activity

Operating Activity:

Operating activity is the first part of the cash flow statement. The main focuses of the operating activity on the cash inflow and outflow from the selling goods, providing services and manufacturing. Long term capital and investing cost are not included in the operating activity.

Financial Activity:

Financial activity is the part of the cash flow statement. Financial activity involves the long term liability, borrowing and stockholder’s equity. All the changes in the long term liability, equity and borrowings reported in the financial statement.

Investing Activity:

Investing activity is the third part of the cash flow statement which gives the information related to the acquisition and disposal of the long term assets of the company such as land and building, investment and plant.

To identify: Classification of operating, investing and operating activity.

Explanation of Solution

1.

Cash from investment is a investing activity because investment is noncurrent assets and cash from sale of noncurrent asset is an investing activity.

2.

Cash payment from a customer related to the day to day work of the company. So, cash received from customer is an operating activity.

3.

Payment of the salary and wages is related to day to day expenses. So payment of the wages and salary is an operating activity.

4.

Inventory is related to the operating activity because inventory is necessary to carry on the production of the company.

5.

Dividend is a financial activity of the company because dividend is paid to the stock holder of the company.

6.

Cash from common stock is the financial activity because financial activity includes the long term debts and razing of the capital from the outside.

7.

Interest on note is a operating activity of the company because is received regularly from the borrowers.

8.

Interest on note is a operating activity of the company because is paid regularly to the borrower.

9.

Cash received from sale of land is an investing activity because investing activity includes the purchase and sale of the long term assets.