Question

CES Exercise 5-13 The major classifications of activities reported in the statement of cash flows are operating, investing, and financing. Classify each of the transactions listed below as: Operating activity-add to net income. Operating activity-deduct from net income. Investing activity Financing activity. Reported as significant noncash activity 1. 2. 3. 5. The transactions are as follows. Classifications of Activities > ndy << Transactions (a) Issuance of common stock. (b) Purchase of land and building. (c) Redemption of bonds. (d) Sale of equipment. (e) Depreciation of machinery. (0) Amortization of patent. (g) Issuance of bonds for plant assets. (h) Payment of cash dividends. (0) Exchange of furniture for office equipment. 6) Purchase of treasury stock. (k) Loss on sale of equipment. (0) Increase in accounts receivable during the year. V < LI

Answer 1

S.NO a b с d e Classification of activities reported in the statement of cash Flows: Transactions Classification of Activities Reason for the classification Any inflow or outflow resulting in change of capital falls under Financing activity. So inflow from issue of equity share capital falls under the perview of financing Issuance of Common Stock Financing Activity activity. Purchase of Land & Building Investing Activity Acquisition of Long term Asset falls under the perview of Investing Activity Any inflow or outflow resulting in change of capital falls under Financing activity. So outflow from repayment of bonds issued earlier falls under the perview of Redemption of Bonds Financing Activity financing activity. Sale of Equipment Investing Activity Disposal of Long term Asset falls under the perview of Investing Activity. Depreciation of Machinery Reported as significant non-cash activity Depreciation is a non cash expenditure. Amortization is writing off a particular asset partially to the profit & loss account. Amortization of patent Reported as significant non-cash activity So it does not involve any cash inflow/outflow. Issuance of bonds for Plant Assets Reported as significant non-cash activity No cash inflow or outflow is involved here. Payment to stakeholders in the form of dividends falls under the perview of Payment of cash dividends Financing Activity financing activity Exchange of furniture for office equipment Reported as significant non-cash activity No cash inflow or outflow is involved here. Purchase of treasury stock Financing Activity Repurchase of its own stock earlier issued falls under the financing activity. Loss on sale of assets which was written off to profit & loss account has to be Loss on sale of equipment Operating Activity - Add to net income added back for cash flow from operating activity under indirect method. Piling up of account receivables is sort of increase in current asset so has to be deducted from net income for cash flow from operating activity under indirect Increase in accounts receivable during the year Operating Activity - deduct from net income method. Question is not visible f g h 0 J k m