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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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Stillwater Designs is a private company and outsources production of its Kicker speaker lines. Suppose that Stillwater Designs provided you the following transactions:

  1. a. Sold a warehouse for $750,000.
  2. b. Reported a profit of $100,000.
  3. c. Retired long-term bonds.
  4. d. Paid cash dividends of $350,000.
  5. e. Obtained a mortgage for a new building from a local bank.
  6. f. Purchased a new robotic system.
  7. g. Issued a long-term note payable.
  8. h. Purchased a 40% interest in a company.
  9. i. Reported a loss for the year.
  10. j. Negotiated a long-term loan.

Required:

Classify each of these transactions as an operating activity, an investing activity, or a financing activity. Also, 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.A warehouse sold for $750,000...

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