Question

Print by: Erica Burkett AC202:AC202DLU1A2020 Principles of Managerial Account in / AC202 - Chapter 12 Assignment Exercise 12-2 Your answer is partially correct. Try again. An analysis of comparative balance sheets, the current year's income statement, and the general ledger accounts of Hailey Corp, uncovered the following items. Assume all items involve cash unless there is information to the contrary. Indicate how each item should be classified in the statement of cash flows using these four major classifications: operating activity (that is, the item would be listed among the adjustments to net income to determine net cash provided by operating activities under the indirect method), investing activity, financing activity, and significant noncash investing and financing activity. (a) Payment of interest on notes payable. Investing Activity (b) Exchange of land for patent. Noncash Investing and Financing Activity (c) Sale of building at book value. Investing Activity (d) Payment of dividends. Financing Activity (e) Depreciation Operating Activity (1) Conversion of bonds into common stock. Noncash Investing and Financing Activity (9) Receipt of interest on notes receivable. Noncash Investing and (h) Issuance of capital stock. Financing Activity 00 Amortization of patent. Operating Activity 0) Issuance of bonds for land. Financing Activity (k) Purchase of land. Investing Activity (0) Receipt of dividends on investment in stock Noncash Investing and (m) Loss on disposal of plant assets. Operating Activity

Answer 1

The answers mentioned above with red boxes are incorrect so below I am providing correct answers to those :-

a) it would be "operating Activity". Since as per accrual basis the interest expense is recorded in statement of profit and loss when it accrues

And the in operating activities under indirect method , the net income is derived after adjustment for interest so at the time of real payment of the interest, it would be adjusted under working capital which comes under operating activities.

g) This is also " operating activity" and the reason is same as for above Question (a). The only difference is that it's increasing cash inflows and the Activity in (a) above is increasing cash outflows.

J): This is non cash financing and investing Activity.

Since bonds are given for land.

Hence no cash is involved.

And, bonds comes under financing Activity, land comes under investing Activity.

L) This will be under operating activity for the companies whose primary business is investment.

But for orhers ,it will be under Investing activity.