Question

Indicate whether each of the following items should be classified as an operating, investing, or financing activity on the statement of cash flows. If an item does not belong on the statement, indicate as "NA" (Not applicable). a. Declaration of dividends on common shares, to be paid later b. Payment of dividends on common shares c. Purchase of equipment d. Receipt of cash from the sale of a warehouse e. Receipt of cash through a long-term bank loan f. Interest payments on a long-term bank loan g. Acquisition of land for cash h. Investment in another company by purchasing some of its shares i. Net decrease in accounts payable

Answer 1

Declaration of dividends on common shares, to be paid later	Not applicable	No cash flow	It is dividend payable which is a current liability and reported in the balance sheet. The cash outflow occurs when the company issues the dividend checks.
Payment of dividends on common shares	Financing activity	Cash outflow	Actual cash outflow occurs.
Purchase of equipment	Investing activity	Cash outflow	Cash is paid for the purchase and hence cash outflow.
Receipt of cash from the sale of a warehouse	Investing activity	Cash inflow	It is a sale of fixed assets entailing cash receipts.
Receipt of cash through a long-term bank loan	Financing activity	Cash inflow	Proceeds from bank loans, bonds, etc. are financing activities.
Interest payments on a long-term bank loan	Operating activity	Cash outflow	Interest payments are reported under operating activities.
Acquisition of land for cash	Investing activity	Cash outflow	Purchase of fixed assets is an investing activity.
Investment in another company by purchasing some of its shares	Investing activity	Cash outflow	Cash is paid for purchasing the shares.
Net decrease in accounts payable	Operating activity	Cash outflow	When accounts payable decreases, it is assumed that cash is paid.