FUND.ACCT.PRIN.
FUND.ACCT.PRIN.
25th Edition
ISBN: 9781260247985
Author: Wild
Publisher: RENT MCG
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Chapter 16, Problem 1QS

Transaction classification by activity
C1

Classify the following cash flows as either operating (O), investing (I), or financing (F) activities.

1. Sold long-term investments for cash.
2. Received cash payments from customers.
3. Paid cash for wages and salaries.
4. Purchased inventories for cash.
5. Paid cash dividends.
6. Issued common stock for cash.
7. Received cash interest on a note.
8. Paid cash interest on outstanding notes.
9. Received cash from sale of land at a loss.
10. Paid cash for property taxes on building.

Expert Solution & Answer
Check Mark
To determine

Introduction:

Cash flow statement is one of the most important parts of any organisation's Financial Statements. This cash flow statement shows the flow of cash in (sources) and cash out (uses) of the organisation. This statement is prepared for a given period and each transaction is classified into three activities namely, Operating, Investing or Financing.

Her, in the problem provided to us, we are required to ascertain the classification of each transaction given to us into three activities namely, Operating, Investing or Financing.

Answer to Problem 1QS

Solution:

    Sr. No.TRANSACTIONSACTIVITIES
    1.Sold long term investments for cashInvesting activity
    2.Received cash payments from customersOperating activity
    3.Paid cash for wages and salariesOperating activity
    4.Purchased inventories for cashOperating activity
    5.Paid cash dividendsFinancing activity
    6.Issued common stock for cashFinancing activity
    7.Received cash interest on a noteOperating activity
    8.Paid cash interest on outstanding notesOperating activity
    9.Received cash from sale of land at a lossInvesting activity and Operating activity
    10.Paid cash for property taxes on buildingOperating activity

Explanation of Solution

Every cash flow statement has three parts namely,

A) Cash flows from operating activities:-

These activities result from the operations of an organisation. The starting point of these activities is the net income earned by the organisation and adding into them the non cash expenses like depreciation, amortisation etc. and also adding the changes in working capital. There are two methods of reporting operating activities which are direct method and indirect method.

B) Cash flows from Investing Activities:-

These activities primarily show an organisation's purchase and sale of capital assets i.e. noncurrent assets like property, plant and equipment etc.

C) Cash flows from Financing Activities:-

These activities include transactions which allows an organisation to raise capital i.e. transactions which allow it to finance its operations and how the payment is made to its stakeholders like common stock holders, lenders of long term capital.Now, we will classify each of the ten transactions given to us into these three activities in the below drawn table.

Following table will classify each transaction into three categories:-

    Sr. No.TRANSACTIONSACTIVITIESCOMMENT
    1.Sold long term investments for cashInvesting activitySale will be shown as positive amount as it will result in cash inflows.
    2.Received cash payments from customersOperating activityShown in direct method while showing operating activities as a positive amount.
    3.Paid cash for wages and salariesOperating activityShown in direct method while showing operating activities as a negative amount.
    4.Purchased inventories for cashOperating activityShown in direct method while showing operating activities as a negative amount.
    5.Paid cash dividendsFinancing activityShown as a negative amount as it results into cash outflow.
    6.Issued common stock for cashFinancing activityShown as a positive amount as it results into cash inflows.
    7.Received cash interest on a noteOperating activityShown as a positive amount as it results into cash inflows.
    8.Paid cash interest on outstanding notesOperating activityShown as a negative amount as it results into cash inflows.
    9.Received cash from sale of land at a lossInvesting activity and Operating activitySale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
    10.Paid cash for property taxes on buildingOperating activityGenerally, shown as operating item, but can also be shown under investing activity as negative amount.
Conclusion

Hence, cash flow statement is an integral part of an organisation's annual report because even if the statement of income shows net loss, then the cash flow statement can give a thorough check to the stakeholders as if the organisation has positive cash balance or negative cash balance even after suffering a loss because, if it has a positive cash balance with net loss, then it can be said that organisation is capable of turning this net loss figure to net profit in the future periods.

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Chapter 16 Solutions

FUND.ACCT.PRIN.

Ch. 16 - QS 16-11 Computing investing cash flows P3 Refer...Ch. 16 - Computing cash flows flow investing P3 Compute...Ch. 16 - QS 16-13 Computing cash from asset sales P3 Q...Ch. 16 - QS 16-14 Computing financing cash flows...Ch. 16 - Prob. 15QSCh. 16 - Prob. 16QSCh. 16 - Prob. 17QSCh. 16 - QS 16-18 Indirect: Preparing statement of cash...Ch. 16 - Ma rice la Yahtzee Cluedu Cash provided (used) by...Ch. 16 - QS 16-20A Recording entries in a spreadsheet P4 A...Ch. 16 - QS 16-21B Direct: Computing cash receipts from...Ch. 16 - QS 16-22B Direct: Computing cash payments to...Ch. 16 - QS 16-23B Direct: Computing cash paid for...Ch. 16 - Prob. 24QSCh. 16 - Prob. 25QSCh. 16 - Prob. 26QSCh. 16 - Prob. 27QSCh. 16 - Prob. 28QSCh. 16 - Prob. 1ECh. 16 - Prob. 2ECh. 16 - Exercise 16-3 Indirect: Reporting and interpreting...Ch. 16 - Exercise 16-4 Indirect: Cash flows from operating...Ch. 16 - Exercise 16-5 Indirect: Cash flows from operating...Ch. 16 - Exercise 16-6 Indirect: Cash flows from operating...Ch. 16 - Exercise 16-7 Indirect: Reporting cash flows from...Ch. 16 - Prob. 8ECh. 16 - Exercise 16-8 Cash flows from financing...Ch. 16 - Exercise 16-10 Reconstructed entries P3 For each...Ch. 16 - Exercise 16-11 Indirect: Preparing statement of...Ch. 16 - Exercise 16-12 Indirect: Preparing statement of...Ch. 16 - Exercise 16-13 Analyzing cash flow on total assets...Ch. 16 - Exercise 16-14A Indirect: Cash flows spreadsheet...Ch. 16 - Exercise 16-14 Direct Cash flow...Ch. 16 - Exercise 16-16BDirect: Computing cash flows P5 For...Ch. 16 - Exercise 16-17B Direct: Preparing statement of...Ch. 16 - Prob. 18ECh. 16 - Prob. 19ECh. 16 - Prob. 20ECh. 16 - Prob. 21ECh. 16 - Prob. 1PSACh. 16 - Prob. 2PSACh. 16 - Prob. 3PSACh. 16 - Prob. 4PSACh. 16 - Prob. 5PSACh. 16 - Prob. 6PSACh. 16 - Prob. 7PSACh. 16 - Prob. 8PSACh. 16 - Problem 16-1B Indirect Computing cash flows from...Ch. 16 - Prob. 2PSBCh. 16 - Prob. 3PSBCh. 16 - Prob. 4PSBCh. 16 - Prob. 5PSBCh. 16 - Prob. 6PSBCh. 16 - Prob. 7PSBCh. 16 - Problem 16-8BBDirect: Statement of cash flows P5...Ch. 16 - Prob. 16SPCh. 16 - Prob. 1AACh. 16 - Prob. 2AACh. 16 - Prob. 3AACh. 16 - Prob. 1DQCh. 16 - Prob. 2DQCh. 16 - What are some financing activities reported on the...Ch. 16 - Prob. 4DQCh. 16 - Prob. 5DQCh. 16 - Prob. 6DQCh. 16 - Prob. 7DQCh. 16 - Prob. 8DQCh. 16 - Prob. 9DQCh. 16 - Prob. 10DQCh. 16 - Prob. 11DQCh. 16 - Prob. 1BTNCh. 16 - Prob. 2BTNCh. 16 - BTN 16-3 Access the April 14. 2016. filing of the...Ch. 16 - BTN 16-6 Team members are to coordinate and...Ch. 16 - Prob. 5BTN
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