Question

For each event listed below, select the appropriate category which describes the effect of the event on a statement of cash flows. Use the abbreviations provided. Operating activities (O). Investing activities (I). Financing activities (F). Noncash activity (N). __a. Repayment of long-term debt ____ b. Amortization expense on patents ____ c. Sale of goods on account ____ d. Cash dividend payment to investors ____ e. Issuance of stock to acquire land ____ f. Sale of securities (long-term) ____ g. Payment of employees' wages ____ h. Purchase of bonds of another company ____ i. Purchase of equipment ____ j. Purchase of treasury stock (common)

Answer 1

a. Financing Activity (F) - Proceeds from Long-term debt is a financing Activity and hence, repayment is also a long term debt.

b. Noncash activity (N) - Amortization expense on patents is a non cash activity as upon amortization there is no cash flow of activities.

c. Operating Activity (O) - Sale of goods on account will bring increase/decrease in accounts payables that will be under the head Operating Activity.

d. Financing Activity (I) - Cash dividend payment to investors is a repayment in lieu of amount received as financing activity.

e. Financing Activity (I) - Issuance of stock to acquire land is a financing activity.

f. Investment Activity (I) - Sale of securities is a sale of Investment.

g. Operating Activity (O) - Payment to emloyees are considered as payment of operating activities.

h. Investment Activity (I) - Purchase of bonds of another company is an investment activity.

i. Investment Activity (I) - Purchase of equipment is an investment of the company. Hence will be shown under investment activities.

j. Financing Activity (I) - Purchase of treasury stock means purchasing your own shares from the open market that is a payment  of financing activity.