Concept explainers
Identify each item as operating (O), investing (I), financing (F), or non-cash (N).
Cash receipt from the sale of equipment
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.
Therefore, the cash receipt from sale of equipment is classified under investing (I) activities of statement of cash flows.
Want to see more full solutions like this?
Chapter C Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
- What is the gearing ratio on these financial accounting question?arrow_forwardCost Pools Budgeted Costs Cost Driver Practical Capacity Budgeted Activity for S-101 Budgeted Activity for C-110 Setup activity 250000 Setup hours 5000 2500 2350 Packing and shipping 50000 Number of shipments 2000 1200 775 Inspection 30000 Number of batches 1000 250 700 Machining 750000 Units produced 150000 100000 40000 Purchase ordering 40000 Number of orders 300 50 110 1. Which Cost Pool is approximately 22 percent of the total budgeted costs? 2. What percentage of the total budgeted costs does Machining take up? 3. What is the percentage of the total budgeted costs taken up by the smallest Cost Pool? 4. Which Cost Pool has 1.25 percent slack? 5. Which Cost Pool has the highest percent slack? 6. In the Inspection Cost Pool, what is the amount of difference between budgeted costs and the budgeted activity for both products? 7. In how many cost pools is the S-101 manufacturing overhead (MO) greater than the C-110 manufacturing overhead (MO)? 8. In which Cost Pools is…arrow_forwardFinancial statements for Askew Industries for 2024 are shown below (in thousands): 2024 Income Statement Net sales $ 8,600 Cost of goods sold (6,050) Gross profit 2,550 Operating expenses (1,850) Interest expense (100) Income tax expense (240) Net income $ 360 Comparative Balance Sheets December 31 2024 2023 Assets Cash $ 500 $ 400 Accounts receivable 500 300 Inventory 700 500 Property, plant, and equipment (net) 1,000 1,100 $ 2,700 $ 2,300 Liabilities and Shareholders’ Equity Current liabilities $ 500 $ 250 Bonds payable 900 900 Common stock 500 500 Retained earnings 800 650 $ 2,700 $ 2,300 Calculate the following ratios for 2024. Note: Consider 365 days a year. Round your intermediate calculations and final answers to 2 decimal places.arrow_forward
- What is the firm's weighted average cost of capital?arrow_forwardThe following condensed income statements of the Jackson Holding Company are presented for the two years ended December 31, 2024 and 2023: 2024 2023 Sales revenue $ 15,900,000 $ 10,500,000 Cost of goods sold 9,650,000 6,450,000 Gross profit 6,250,000 4,050,000 Operating expenses 3,560,000 2,960,000 Operating income 2,690,000 1,090,000 Gain on sale of division 690,000 — 3,380,000 1,090,000 Income tax expense 845,000 272,500 Net income $ 2,535,000 $ 817,500 On October 15, 2024, Jackson entered into a tentative agreement to sell the assets of one of its divisions. The division qualifies as a component of an entity as defined by GAAP. The division was sold on December 31, 2024, for $5,270,000. Book value of the division’s assets was $4,580,000. The division’s contribution to Jackson’s operating income before-tax for each year was as follows: 2024 $ 445,000 2023 $ 345,000 Assume an income tax rate of 25%. Required: Note: In each case, net any gain or…arrow_forwardWant to this question answer general Accountingarrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning