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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Classification of Cash Flows

Foster Company reported the following items in its statement of cash flows presented using the indirect method.

  1. Interest paid on long-term note payable
  2. Proceeds from sale of building
  3. Increase in accounts payable
  4. Increase in retained earnings
  5. Cash dividend paid to stockholders
  6. Taxes paid to the federal government

Required:

Indicate whether each item should be classified as a cash flow from operating activities, a cash flow from investing activities, or a cash flow from financing activities.

To determine

Introduction:

In monetary book-keeping, a cash flow statement, otherwise called the statement of cash flows, is a budget report that demonstrates how changes in balance sheet records and pay influence cash and cash counterparts, and separates the examination to operating, investing, and financing activities.

To discuss:

Indicate whether each item should be classified as a cash flow from operating activity, a cash flow from investing activities, or a cash flow from financing activities.

Explanation
Item Activities
Interest paid on long-term note payable Add: operating activity

Less: Financing activity

Interest paid on long-term borrowing.
Proceeds from sale of building Add: investing activity Sale of fixed assets consider to investing.
Increase in accounts payable Add: operating activity Purchase goods on credit...

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