Question

2. Indicate whether the transaction is a financing, investing, or operating activity a. Compton purchased a tract of land from Jacobsen Real Estate for $1,001,000 cash. b. Compton issued 2,000 shares of its common stock to George Micros in exchange for $110,000 cash. C. Compton purchased a John Deere tractor for $56,000 on credit d. Michael Rotunno paid Compton $9,200 cash for services performed. The services had been performed by Compton several months ago for a total price of $11,700 of which Rotunno had previously paid $2,500 e. Compton paid its monthly payroll by issuing checks totaling $41,450 f. Compton declared and paid its annual dividend of $15,000 cash.

Answer 1

Cashflow statement

Operating activity is any cash paid or received related to trade related activities of the company.

Investing activity is any cash paid or received related to acquisition of fixed assets or investments.

Financing activity is any cash paid or received related to loans or equity.

Solutions

Req a: Investing Activity - Purchase of Land

Req b: Financing Activity - Issue of shares

Req c: Not Applicable - Purchase of Tractor on credit

(If it had been purchase of tractor by cash, it would have been Investing Activity)

Req d: Operating Activity - Services income

Req e: Operating Activity - Payment of Payroll

Req f: Financing Activity - Payment of Dividend (related to shares)