Question

Classifying items on the indirect statement of cash flows [10 min]

Destiny Corporation is preparing its statement of cash flows by the indirect method. Destiny has the following items for you to consider in preparing the statement:
a. Increase in accounts payable
b. Payment of dividends
c. Decrease in accrued liabilities
d. Issuance of common stock
e. Gain on sale of building
f. Loss on sale of land
g. Depreciation expense
h. Increase in inventory
i. Decrease in accounts receivable
j. Purchase of equipment
Requirement
1. Identify each item as a(n):_______.
Operating activity—addition to net income (O+), or subtraction from net income (O-)
Investing activity—addition to cash flow (I+), or subtraction from cash flow (I-)
Financing activity—addition to cash flow (F+), or subtraction from cash flow (F-)
Activity that is not used to prepare the indirect cash flow statement (N)

Answer 1

a. Increase in accounts payable

Identification: O+

b. Payment of dividends

Identification: F-

c. Decrease in accrued liabilities

Identification: O-

d. Issuance of common stock

Identification: F+

e. Gain on sale of building

Identification: O-

f. Loss on sale of land

Identification: O+

g. Depreciation expense

Identification: O+

h. Increase in inventory

Identification: O-

i. Decrease in accounts receivable

Identification: O+

j. Purchase of equipment

Identification: I-