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Chapter 14: Q16E (page 774)

Classifying cash flow items Consider the following transactions:

  1. Purchased equipment for \(130,000 cash.
  2. Issued \)14 par preferred stock for cash.
  3. Cash received from sales to customers of \(35,000.
  4. Cash paid to vendors, \)17,000.
  5. Sold building for \(19,000 gain for cash.
  6. Purchased treasury stock for \)28,000.
  7. Retired a notes payable with 1,250 shares of the company’s common stock.

Identify the category of the statement of cash flows in which each transaction would be reported.

Short Answer

Expert verified
  1. Investing
  2. Financing
  3. Operating
  4. Operating
  5. Investing
  6. Investing
  7. Non-cash

Step by step solution

01

Step-by-Step SolutionStep 1: Cash flow from operating activities

Cash Flow From Operating Activities

Amount($)

Cash received from sales to customers of

35,000

Cash paid to vendors

(17,000)

Cash flow provided by operating activities

18,000

02

Cash flow from investing activities

Cash Flow From Investing Activities

Amount($)

Purchased equipment for $130,000 cash.

(35,000)

Sold building for $19,000 gain for cash.

19,000

Purchased treasury stock

(28,000).

Cash used by investing activities

44,000

03

Cash flow from financing activities

Cash Flow From Financing Activities

Amount($)

Issued $14 par preferred stock for cash.

14

Net cash provided by financing activities

14

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Most popular questions from this chapter

Classifying transactions on the statement of cash flows—indirect method Consider the following transactions:

Identify the category of the statement of cash flows, indirect method, in which each transaction would be reported.

The comparative balance sheet of Jackson Educational Supply at December 31, 2018, reported the following:


20182017
Current

Assets:
Cash\( 87,700
\) 23,500
Accounts Receivable15,30022,000
Merchandise Inventory
62,600
60,400
Current

Liabilities:
Accounts Payable
28,100
26,100
Accrued Liabilities
10,600
11,300

Jackson’s transactions during 2018 included the following:

Payment of cash dividends \( 16,200

Depreciation expense \) 16,700

Purchase of equipment with cash 54,700

Purchase of building with cash 98,000

Issuance of long-term notes payable to borrow cash 48,000

Net income 57,600

Issuance of common stock for cash 105,000

Requirements

  1. Prepare the statement of cash flows of Jackson Educational Supply for the year ended December 31, 2018. Use the indirect method to report cash flows from operating activities.
  2. Evaluate Jackson’s cash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.
  3. If Jackson plans similar activity for 2019, what is its expected free cash flow?

Question: What accounts on the balance sheet must be evaluated when completing the financing activities section of the statement of cash flows?

Question: Classifying items on the indirect statement of cash flows

The statement of cash flows categorizes like transactions for optimal reporting. Identify each item as a(n):

• Operating activity—addition to net income (O+) or subtraction from net income (O-)

• Investing activity—cash inflow (I+) or cash outflow (I-)

• Financing activity—cash inflow (F+) or cash outflow (F-)

• Non-cash investing and financing activity (NIF)

• Activity that is not used to prepare the indirect statement of cash flows (N)

The indirect method is used to report cash flows from operating activities.

  1. Loss on sale of land.
  2. Acquisition of equipment by issuance of note payable.
  3. Payment of long-term debt.
  4. Acquisition of building by issuance of common stock.
  5. Increase in Salaries Payable.
  6. Decrease in Merchandise Inventory.
  7. Increase in Prepaid Expenses.
  8. Decrease in Accrued Liabilities.
  9. Cash sale of land (no gain or loss).
  10. Issuance of long-term note payable to borrow cash.
  11. Depreciation Expense.
  12. Purchase of treasury stock.
  13. Issuance of common stock.
  14. Increase in Accounts Payable.
  15. Net income.
  16. Payment of cash dividend

Using a spreadsheet to prepare the statement of cash flows—indirect method Use the Boost Plus, Inc. data in Exercise E14-21 to prepare the spreadsheet for the 2018 statement of cash flows. Format cash flows from operating activities by the indirect method.
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