Question

Using the codes below, indicate how each item will affect a Statement of Cash Flows. You may use a code more than once or not at all.

Code	Effect
OA	Added to net income in the operating section
OS	Subtracted from net income in the operating section
IR	Cash receipt in the investing section
IP	Cash payment in the investing section
FR	Cash receipt in financing section
FP	Cash payment in financing section
N	Non-cash investing and/or financing activity

Record your answer using the code.

1.  Payment on long-term debt

2.  Issuance of bonds at a premium

3.  Collection of accounts receivable

4.  Cash dividends declared

5.  Issuance of stock to acquire land

6.  Payment of employee's wages

7.  Issuance of common stock for cash

8.  Sale of real estate held as a long-term investment

Answer 1

Indicate how each item will affect the statement of cash flows as follows: Transactions Code Payment on long-term debt FP Reason Payment in respect of long term debt is a cash outflow from financing activity as it reduces the creditors of the company. When the bonds are issued at a premium, there is an inflow of cash through financing activity and the liability of a company is increased Issuance of bonds at a premium | FR Collection of accounts receivable ТОА When the accounts receivable are collected there is an inflow of cash from operating activities and accounts receivable decrease. Hence, it is added to the net income. When dividends are declared, there is no outflow of cash. Only when the dividends are paid, there is a cash payment in financing section In issuance of stock to acquire land, there is only a barter of stock and land, and there is no flow of cash Cash dividends declared IN Issuance of stock to acquire land N Payment of employee's wages OS Issuance of common stock for cash FR Payment of employee's wages is a day to day operation of a business. It reduces the cash from operating activities and is subtracted from the net income. When the stock is issued, there is an inflow of cash. There is an increase in the capital of the company. Hence, it comes under financing activity. When there is a sale of real estate held as a long term investment, there is an inflow of cash from investing activity Sale of real estate held as a long-term investment IR