Question

E5-13 (Statement of Cash flows- Classifications) The major classifications of activities reported in the statements of cash flows are operating, investing, and financing. Classify each of the transactions listed below as:1. Operating activity-add to net income2. Operating activity-deduct from net income3. Investing activity4. Financing activity5. Reporting as significant noncash activityThe transactions are as follows.(a) Issuance of capital stock(b) Purchase of land and building(c) Redemption of bonds(d) Sale of equipment(e) Depreciation of machinery(f) Amortization of patent(g) Issuance of bonds for plant assets(h) Payment of cash dividends(i) Exchange of furniture for office equipment(j) Purchase of treasury stock(k) Loss on sale of equipment(l) Increase in accounts receivable during the year(m) Decrease in accounts payable during the year

Answer 1

The correct answers are: A. financing ; B. investing ; C. financing ; D. investing ; E. OA add to net income ; F. OA add to net income ; G. reported as significant non-cash act ; H. financing ; I. Significant non cash ; J. financing ; K. OA add to NI ; L. OA deduct from NI ; M. OA deduct from Ni.

Step-by-step explanation:

The classification of cash movements is based on three monetary flows:

1. Cash flows from operating activities: are the cash flows (collections and payments) derived from the main activity of the company with which it generates income and expenses.
2. Cash flows from investment activities: are payments derived from the acquisition of non-current assets (intangible assets, materials, real estate investments ...) as well as charges derived from disposal, amortization or maturity.
3. Cash flows from financing activities: These are collections from the acquisition by third parties of securities issued by the company or from resources granted by financial entities, as well as payments made for their amortization or return. Payments to shareholders in the form of dividends also fall into this category.