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.

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

100%

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

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.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating 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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, 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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Classify the following cash flows as either operating (O), investing (I), or financing (F) activities. Paid cash interest on outstanding notes.

Classifying items on the statement of cash flows Cash flow items must be categorized into one of four categories. Identify each item as operating (O), investing (I), financing (F), or non-cash (N). a. Cash purchase of merchandise inventory b. Cash payment of dividends c. Cash receipt from the collection of long-term notes receivable d. Cash payment for income taxes e. Purchase of equipment in exchange for notes payable f. Cash receipt from the sale of land g. Cash received from borrowing money h. Cash receipt for interest income i. Cash receipt from the issuance of common stock j. Cash payment of salaries

When reporting cash on the balance sheet, companies: O A. combine cash and cash equivalents. B. show each bank account separately. C. combine cash with long - term investments. D. combine cash with accounts receivable.

Answer 2

Textbook Question

100%

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

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.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating 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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, 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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

100%

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

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.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating 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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, 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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

100%

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

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.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating 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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, 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.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

100%

Answer 6

Textbook Question

100%

Answer 7

Expert Solution & Answer

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.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating 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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, 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.

Answer 8

Expert Solution & Answer

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.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating 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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, 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.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

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 12

Answer to Problem 1QS

Solution:

Sr. No.	TRANSACTIONS	ACTIVITIES
1.	Sold long term investments for cash	Investing activity
2.	Received cash payments from customers	Operating activity
3.	Paid cash for wages and salaries	Operating activity
4.	Purchased inventories for cash	Operating activity
5.	Paid cash dividends	Financing activity
6.	Issued common stock for cash	Financing activity
7.	Received cash interest on a note	Operating activity
8.	Paid cash interest on outstanding notes	Operating activity
9.	Received cash from sale of land at a loss	Investing activity and Operating activity
10.	Paid cash for property taxes on building	Operating activity

Answer 13

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.	TRANSACTIONS	ACTIVITIES	COMMENT
1.	Sold long term investments for cash	Investing activity	Sale will be shown as positive amount as it will result in cash inflows.
2.	Received cash payments from customers	Operating activity	Shown in direct method while showing operating activities as a positive amount.
3.	Paid cash for wages and salaries	Operating activity	Shown in direct method while showing operating activities as a negative amount.
4.	Purchased inventories for cash	Operating activity	Shown in direct method while showing operating activities as a negative amount.
5.	Paid cash dividends	Financing activity	Shown as a negative amount as it results into cash outflow.
6.	Issued common stock for cash	Financing activity	Shown as a positive amount as it results into cash inflows.
7.	Received cash interest on a note	Operating activity	Shown as a positive amount as it results into cash inflows.
8.	Paid cash interest on outstanding notes	Operating activity	Shown as a negative amount as it results into cash inflows.
9.	Received cash from sale of land at a loss	Investing activity and Operating activity	Sale proceeds shown under investing activity and loss shown as addition to net income under operating activity.
10.	Paid cash for property taxes on building	Operating activity	Generally, shown as operating item, but can also be shown under investing activity as negative amount.

Answer 14

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.

Answer 15

Ch. 16 - Transaction classification by activity C1 Classify...Ch. 16 - Prob. 2QS Ch. 16 - QS 16-3 Indirect: Computing cash flows from...Ch. 16 - QS 16-4 Indirect: Computing cash flows from...Ch. 16 - QS 16-5 Indirect: Computing cash flows from...Ch. 16 - QS 16-6 Indirect: Computing cash from operations...Ch. 16 - QS 16-7 Indirect: Computing cash from operations...Ch. 16 - QS 16-8 Computing cash from asset sales P3 The...Ch. 16 - Prob. 9QS Ch. 16 - QS 16-10 Computing investing cash flows P3 The...

Concept explainers

Videos

Answer to Problem 1QS

Explanation of Solution

Want to see more full solutions like this?

Chapter 16 Solutions