Question

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the direct method.

Potential Matches:
1 : Declaration and payment of a cash dividend.
2 : Decrease in accounts receivable during a period.
3 : Conversion of bonds payable into common stock.
4 : Purchase of land for cash.
5 : Decrease in merchandise inventory during a period.
6 : Decrease in accounts payable during a period.
7 : Issuance of preferred stock for cash.
8 : Sale of equipment for cash at book value.
: Added in determining cash receipts from customers
: Added in determining cash payments to suppliers
: Deducted in determining cash payments to suppliers
: Cash outflow-investing activity
: Cash inflow-investing activity
: Cash outflow-financing activity
: Cash inflow-financing activity
: Significant non-cash investing and financing activity

Answer 1

Answer and Explanation:

The matching is as follows;

1. The cash dividend should belong from financing activity as a cash outflow

2. If there is an decrease in the account receivable so it would be added for calculating the cash receipts from customers

3. The bond payable would be converted into common stock so this is a non-cash investing and financing activity

4. The land should be purchased for cash so it belong from investing activity as a cash outflow

5. There is a reduction in the merchandise inventory so it would be subtracted for calculating the cash payment made to suppliers

6. There is a reduction in the account payable so it would be added for calculating the cash payment made to suppliers

7. The preferred stock is issued for cash belong from financing activity as a cash inflow

8. The equipment is sold at the book value belong from investing activity as a cash inflow