Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
6th Edition
ISBN: 9780134486857
Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura
Publisher: PEARSON
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Textbook Question
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Chapter C, Problem 1TI

Identify each item as operating (O), investing (I), financing (F), or non-cash (N).

Cash receipt from the sale of equipment

Expert Solution & Answer
Check Mark
To determine

Classify the given item as operating (O), investing (I), financing (F), or non-cash (N) activities.

Explanation of Solution

Statement of cash flows: Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

 Following are three categories of cash flows shown on a statement of cash flows:

Operating activity: Operating activity refers to the cash received or cash paid in day-to-day operating activities of a company.  In this direct method, cash flow from operating activities is computed by using all cash receipts and cash payments during the year.

Cash flows from operating activities (Direct method)
 
Add: Cash receipts.
         Cash receipt from customer
         Dividend received
         Interest received
 
Less: Cash payments:
To supplier for acquisition of inventory
To employees as salaries
For interest on loans
Income tax expenses and other operating expenses
Net cash provided from or used by operating activities

Table (1)

Cash flows from investing activities: Investing activities refer to the activities carried out by a company for acquisition of long term assets. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations.

Cash flows from investing activities
 
Add: Proceeds from collection of loan made to borrowers
         Sale of marketable securities / investments
         Sale of property, plant and equipment
         Proceeds from discounting notes receivables
 
Deduct: Purchase of fixed assets/long-lived assets
              Loan made by the company to others
              Purchase of marketable securities
Net cash provided from or used by investing activities

Table (2)

Cash flows from financing activities: Financing activities refer to the activities carried out by a company to mobilize funds to carry out the business activities.   It includes raising cash from long-term debt or payment of long-term debt, which is used for business operations.

Cash flows from financing activities
 
Add: Issuance of common stock
          Proceeds from borrowings by signing of a mortgage
          Proceeds from sale of treasury stock
          Proceeds from issuance of debt
 
Deduct: Payment of dividend
              Repayment of debt
              Interest paid
              Redemption of debt
              Purchase of treasury stock
Net cash provided from or used by financing activities

Table (3)

Non-cash investing and financing activities: The non-cash investing and financing activities that do not involve any cash dealings are known as non-cash transactions. In these type transactions, there will not be any inflow or outflow of cash. Simply put, the transaction, which does not have an impact on the inflow or outflow of cash, is called as non-cash transaction.

Examples of non-cash transactions are stated below:

  • Issue of common stock to retire long-term debt.
  • Purchase of land or building by signing mortgage notes payable.
  • Purchase of land and building in exchange for notes payable.
  • Purchase of machinery by issuing notes payable.
  • Issuance of common stock for purchase of land.
Conclusion

Therefore, the cash receipt from sale of equipment is classified under investing (I) activities of statement of cash flows.

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Chapter C Solutions

Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)

Ch. C - Prob. 2QCCh. C - Prob. 3QCCh. C - Prob. 4QCCh. C - Prob. 5QCCh. C - Prob. 6QCCh. C - Prob. 7QCCh. C - Prob. 8QCCh. C - Prob. 9QCCh. C - Prob. 10QCCh. C - Prob. 1RQCh. C - Prob. 2RQCh. C - Prob. 3RQCh. C - Prob. 4RQCh. C - Prob. 5RQCh. C - Prob. 6RQCh. C - Prob. 7RQCh. C - If a company experienced a loss on disposal of...Ch. C - Prob. 9RQCh. C - Prob. 10RQCh. C - Prob. 11RQCh. C - Prob. 12RQCh. C - Prob. 13RQCh. C - Prob. 14RQCh. C - How does the direct method differ from the...Ch. C - Prob. 16RQCh. C - Prob. 1SECh. C - Prob. 2SECh. C - Prob. 3SECh. C - DVR Equipment, Inc. reported the following data...Ch. C - Prob. 5SECh. C - Prob. 6SECh. C - Prob. 7SECh. C - Prob. 8SECh. C - Prob. 9SECh. C - Julie Lopez Company expects the following for...Ch. C - Prob. 11SECh. C - Prob. 12SECh. C - Prob. 13SECh. C - Prob. 14SECh. C - Prob. 15SECh. C - Prob. 16ECh. C - Prob. 17ECh. C - Prob. 18ECh. C - Prob. 19ECh. C - Prob. 20ECh. C - The income statement of Boost Plus, Inc. follows:...Ch. C - Prob. 22ECh. C - Rouse Exercise Equipment, Inc. reported the...Ch. C - Use the Rouse Exercise Equipment data in Exercise...Ch. C - Prob. 25ECh. C - Prob. 26ECh. C - Prob. 27ECh. C - Prob. 28ECh. C - Prob. 29ECh. C - Prob. 30ECh. C - Prob. 31ECh. C - American Rare Coins (ARC) was formed on January 1,...Ch. C - Prob. 33APCh. C - Prob. 34APCh. C - Prob. 35APCh. C - Boundary Rare Coins (BRC) was formed on January 1,...Ch. C - Use the Rolling Hills, Inc. data from Problem...Ch. C - Prob. 38APCh. C - Classic Rare Coins (CRC) was formed on January 1,...Ch. C - Accountants for Benson, Inc. have assembled the...Ch. C - Prob. 41BPCh. C - Prob. 42BPCh. C - Prob. 43BPCh. C - Use the Sweet Valley data from Problem P14-41B....Ch. C - Prob. 45BPCh. C - Prob. 47PCh. C - Before you begin this assignment, review the Tying...Ch. C - Prob. 1DCCh. C - Prob. 1EICh. C - Details about a companys cash flows appear in a...
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