Question

An analysis of comparative balance sheets, the current year's income statement, and the general ledger accounts of Gagliano Corp. uncovered the following items. Assume all items involve cash unless there is information to the contrary.

Indicate how each item should be classified in the statement of cash flows using these four major classifications: operating activity (indirect method), investing activity, financing activity, and significant noncash investing and financing activity.

(a) Payment of interest on notes payable. Financing activityOper. activity(loss); invest. activity(cash proceeds from sale)Operating activityInvesting activityNoncash investing and financing activity
(b) Exchange of land for patent. Operating activityInvesting activityOper. activity(loss); invest. activity(cash proceeds from sale)Financing activityNoncash investing and financing activity
(c) Sale of building at book value. Investing activityOperating activityNoncash investing and financing activityOper. activity(loss); invest. activity(cash proceeds from sale)Financing activity
(d) Payment of dividends. Financing activityOperating activityNoncash investing and financing activityInvesting activityOper. activity(loss); invest. activity(cash proceeds from sale)
(e) Depreciation. Operating activityInvesting activityFinancing activityOper. activity(loss); invest. activity(cash proceeds from sale)Noncash investing and financing activity
(f) Receipt of dividends on investment in stock. Investing activityFinancing activityOper. activity(loss); invest. activity(cash proceeds from sale)Operating activityNoncash investing and financing activity
(g) Receipt of interest on notes receivable. Noncash investing and financing activityOper. activity(loss); invest. activity(cash proceeds from sale)Investing activityFinancing activityOperating activity
(h) Issuance of capital stock. Investing activityOper. activity(loss); invest. activity(cash proceeds from sale)Financing activityOperating activityNoncash investing and financing activity
(i) Amortization of patent. Noncash investing and financing activityInvesting activityOper. activity(loss); invest. activity(cash proceeds from sale)Operating activityFinancing activity
(j) Issuance of bonds for land. Oper. activity(loss); invest. activity(cash proceeds from sale)Operating activityFinancing activityInvesting activityNoncash investing and financing activity
(k) Purchase of land. Financing activityOper. activity(loss); invest. activity(cash proceeds from sale)Investing activityOperating activityNoncash investing and financing activity
(l) Conversion of bonds into common stock. Financing activityOperating activityInvesting activityNoncash investing and financing activityOper. activity(loss); invest. activity(cash proceeds from sale)
(m) Loss on sale of land. Noncash investing and financing activityInvesting activityOperating activityOper. activity(loss); invest. activity(cash proceeds from sale)Financing activity
(n) Retirement of bonds. Noncash investing and financing activityOper. activity(loss); invest. activity(cash proceeds from sale)Investing activityFinancing activityOperating activity

Answer 1

Step-by-step explanation:

There are three types of activities in the cash flow statement which are described below:

1. Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income

2. Investing activities: It records those activities which include purchase and sale of the long term assets. The purchase is an outflow of cash whereas sale is an inflow of cash

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance. The issue of shares is an inflow of cash whereas redemption and dividend is an outflow of cash.

So, the categorization is shown below:

(a) Payment of interest on notes payable - Operating activity

(b) Exchange of land for patent - non- cash investing and financing activity

(c) Sale of building at book value - Investing activity

(d) Payment of dividends - Financing activity

(e) Depreciation - Operating activity

(f) Receipt of dividends on investment in stock - Operating activity

(g) Receipt of interest on notes receivable - Operating activity

(h) Issuance of capital stock - Financing activity

(i) Amortization of patent - Operating activity

(j) Issuance of bonds for land - Non-cash investing and financing activity

(k) Purchase of land - Investing activity

(l) Conversion of bonds into common stock - Non-cash investing and financing activity

(m) Loss on sale of land - Operating activity

(n) Retirement of bonds. - Financing activity