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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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Analyzing Balance Sheet Accounts

A review of the balance sheet of Dixon Company revealed the following changes in the account balances:

a. Increase in retained earnings

b. Increase in equipment

c. Increase in interest receivable

d. Decrease in bonds payable

e. Increase in unearned rent revenue

f. Decrease in prepaid insurance

g. Decrease in long-term investment

h. Increase in accounts payable

Required:

1. Classify each change in the balance sheet account as a cash flow from operating activities, a cash flow from investing activities, a cash flow from financing activities, or a noncash investing and financing activity.

2. Indicate whether each of the changes in the balance sheet accounts produces an increase in cash, produces a decrease in cash, or is a noncash activity.

To determine

(a)

Introduction:

Balance sheet is a statement of the assets, liabilities, and capital of a business or other association at a specific point in time, itemizing the equalization of salary and consumption over the former time frame.

Income statement: The Income Statement is one of an organization’s center fiscal summaries that demonstrates their profit and loss Profit and Loss Statement (P&L)A profit and loss statement (P&L) is a monetary report that gives an outline of an organization’s incomes, costs, and profits/losses over some undefined time frame over some stretch of time.

A cash flow statement is a financial statement that gives aggregate data regarding all cash inflows a company gets from its continuous operations and external venture sources, as well as all cash outflows that pay for business activities and speculations amid a given period.

To choose:

Classify each change in the balance sheet account as a cash flow from operating activities, a cash flow from investing activities, a cash flow from financing activities, or a noncash investing and financing activity.

Explanation
Item Cash flow Balance sheet
a. Increase in retained earnings Add: Operating activity Increase shareholder funds, normal activity in the business.
b. Increase in equipment Less: Investing activity Purchase of fixed assets it means this transaction related to investing
c. Increase in interest receivable Less: operating activity Its means sale goods on credit basis.
d. Decrease in bonds payable Less: financial activity Its means paid the long term liabilities...
To determine

(b)

Introduction:

Balance sheet is a statement of the assets, liabilities, and capital of a business or other association at a specific point in time, itemizing the equalization of salary and consumption over the former time frame.

Income statement: The Income Statement is one of an organization’s center fiscal summaries that demonstrates their profit and loss Profit and Loss Statement (P&L)A profit and loss statement (P&L) is a monetary report that gives an outline of an organization’s incomes, costs, and profits/losses over some undefined time frame over some stretch of time.

A cash flow statement is a financial statement that gives aggregate data regarding all cash inflows a company gets from its continuous operations and external venture sources, as well as all cash outflows that pay for business activities and speculations amid a given period.

To choose:

Indicate whether each of the changes in the balance sheet accounts produces an increase in cash, produces a decrease in cash, or is a noncash activity.

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