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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

The following are several items that might be disclosed on a company’s statement of cash flows presented using the indirect method.

a. Net income

b. Depreciation expense

c. Issuance of common stock

d. Loss on disposal of equipment

e. Purchase of a building

f. Decrease in accounts payable

g. Converted bonds into common stock

h. Sale of long-term investment

i. Payment of interest

j. Increase in inventory

Required:

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

2. CONCEPTUAL CONNECTION Why is the proper classification of cash flows important?

To determine

(a)

Introduction:

Cash Flow from Financing Activities represents inflows and outflows of cash coming about because of obligation issuance and financing, the issuance of any new stock, profit installments, and any repurchase of existing stock.

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 item should be classified as a cash flow from operating activities, cash flow from investing activities, cash flow form financing activities or non-cash investing and financing activity.

Explanation

The following are several items that might be disclosed on a company’s statement of cash flows presented using the indirect method.

Item Activity Reasons
a. Net income Add: Operating activity
b. Depreciation expense Add: Operating activity Non-cash expense, charge on the assets
c. Issuance of common stock Add: Financing activity Increase shareholder equity
d. Loss on disposal of equipment Add: Operating activity Non-cash expense or non-operating
e...
To determine

(b)

Introduction:

Cash Flow from Financing Activities represents inflows and outflows of cash coming about because of obligation issuance and financing, the issuance of any new stock, profit installments, and any repurchase of existing stock.

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:

Why is the proper classification of cash flow important?

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