Question

SI56 Cash provided by operating Chwed by Chord Dud a) Calle the fresh flow for each company ( Which m e ans to be in a financial position TAKING IT FURTHER ly comparing the companies' cash flow can you tell which company Problems: Set B Prepaid are proded with the following transactions that took place during a recent fiscal Accedi Interest Classification w ing! using the TAKING is determi PE LODA Transaction telephone bill for the month Sladoch again. Acquired and by wing common shares Paid a cash dividend te preferred shareholder Performed services for cash. 6. Performed services on account 7. Purchased inventory for cash. Purchased inventory on account. 9. Paid income tax. 10. Made principal repayment on a trade note payable. 11. Pald semi-annual and interest 12. Received rent from a tenant in advance. 13. Recorded depreciation expense. Required.common shares at a price greater than the average cost of the shares. 15. Issued preferred shares for cash. 16. Collected cash from customers on account. 17. Issued a note payable. 18. Paid insurance for the month Tractions s ing the company is reporting and complete the above table for each of the following requireme assuming none of the transactions were previously accrued. The first one has been done for you as an example, (1) Classify each transaction as an operating activity (O), an investing activity (1), a financing activity noncash transaction (NC) on the cash flow statement. If there is choice in how a transaction is d ie indicate the alternative classifications.

Answer 1

Solution

Solution

No.	Transaction	(a) Classification	(b) Cash
1	Paid telephone bill for the month	O	Decrease
2	Sold land for cash at a gain	I	Increase
3	Acquired land by issuing common shares	NC	NE
4	Paid a cash dividend to preferred shareholders	F	Decrease
5	Performed service for cash	O	Increase
6	Performed service on account	NC	NE
7	Purchased inventory for cash	O	Decrease
8	Purchased inventory on account	NC	NE
9	Paid income tax	O	Decrease
10	Made principal repayment on a trade note payable	F	Decrease
11	Paid semi-annual bond interest	O	Decrease
12	Received rent from a tenant in advance	O	Increase
13	Recorded depreciation expense	NC	NE
14	Reacquired common shares at a price greater than the average cost of the shares	F	Decrease
15	Issued preferred shares for cash	F	Increase
16	Collected cash from customers on account	O	Increase
17	Issued a note payable	F	Increase
18	Paid insurance for the month	O	Decrease

Notations –

O – Operating Activity

I – Investing Activity

F – Financing Activity

NE – No Effect

NA – Not Applicable

Notes:

1. For item 2, sale of land for cash at gain,

• Sale of land is Investing activity, cash inflow. The gain however is noncash and would have been added to the current period revenues. Hence, gain on sale of land amount is deducted from net income to arrive at adjusted net income balance.

2. Principal repayment on a trade note payable (unless otherwise mentioned) is a financing activity.
3. The depreciation expense is a non-cash expense, however the depreciation expense recorded is deducted from net income to arrive at the adjusted net income.