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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, Lelkes Company had the following transactions:

  1. a. Purchased land for $ 1,000,000.
  2. b. Issued bonds with a 5-year maturity date for $3,000,000.
  3. c. Reported a loss of $2,000,000 for the most recent year.
  4. d. Bought equipment for $500,000.
  5. e. Issued common stock for $2,000,000.
  6. f. Bought a 30% interest in a company.
  7. g. Retired a long-term note payable.
  8. h. Reported a profit for the year ($500,000).
  9. i. Paid dividends of $1,000,000.

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.Purchase of land for $1,000,000...

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