Question

Distinguish among operating, financing, and investing activities indirect method) Crater HVAC Systems is preparing its statement of cash flows (indirect method) for the year ended March 31, 2018. To follow, in no particular order, is a list of items that will be used in preparing the company's statement of cash flows. Identify each item as an operating activity addition to net income; an operating activity subtraction from net income; an investing activity; a financing activity; or an activity that is not used to prepare the cash flows statement. a. Increase in inventory b. Issuance of common stock c. Decrease in accrued liabilities d. Net income h. Retained earnings i. Payment of dividends j. Increase in accounts payable k. Decrease in accounts receivable L Gain on sale of a building m. Loss on sale of land n. Depreciation expense Decrease in prepaid expense f. Collection of cash from customers g. Purchase of equipment with cash

Answer 1

Please see the answer below:

Step-by-step explanation:

a. Increase in inventory

an operating activity subtraction from net income.

b. Issuance of common stock

a financing activity .

c. Decrease in accrued liabilities

an operating activity addition to net income .

d. Net income

It is the starting point of Cash Flow Statement from which addition and subtraction are made.

e. Decrease in prepaid expense

an operating activity addition to net income .

f. Collection of cash from customers

an operating activity addition to net income .

g. Purchase of equipment with cash

an investing activity .

h. Retained earnings

an activity that is not used to prepare the cash flows statement.

i. Payment of dividends

a financing activity .

j. Increase in accounts payable

an operating activity addition to net income .

k. Decrease in accounts receivable

an operating activity addition to net income .

L. Gain on sale of a building

an operating activity subtraction from net income; an investing activity .

m. Loss on sale of land

an operating activity addition to net income .

n. Depreciation expense

an operating activity addition to net income.