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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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During the last 2 years of operations. Haws Company had the following transactions:

  1. a. Reported a loss for the year ($800,000).
  2. b. Reported profits of $6,000,000 for the most recent year.
  3. c. Issued bonds with a 6-year maturity date for $2,000,000.
  4. d. Retired a mortgage bond.
  5. e. Sold a 20% interest in a company.
  6. f. Paid cash dividends of $2,000,000.
  7. g. Sold equipment for $500,000.
  8. h. Purchased a new manufacturing system for $6,000,000.
  9. i. Issued preferred stock for $2,000,000.

Required:

Classify each of these transactions as an operating activity, an investing activity, or a financing activity and indicate whether the activity is a source of cash or a use of cash.

To determine

Identify the transactions as an operating, investing and financing activity. Also, state whether the transaction is a source of cash or is a use of cash.

Explanation

Cash Flows from Operating Activities:

This category of a cash flow statement shows the operational and profit generating activities in a firm. The operating cash flows increase or decrease the current assets and current liabilities of a firm.

Cash Flows from Investing Activities:

This category of a cash flow statement shows the investing activities which involves the purchase or sale of long-term assets. This includes acquiring new asset or acquiring stock in another company.

Cash Flows from Financing Activities:

This category of a cash flow statement includes those activities which help a company to raise cash from creditors and owners. Financing activities basically show those activities that are required to fund a company.

The classification of the transactions as operating, investing and financing activity and as source of cash or use of cash is shown in the table below:

Serial No.TransactionType of activitySource of cash or use of cash
a.The loss of $800,000 reported in a year...

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