Question

Classification of Activities

For each of the following transactions reported on a statement of cash flows, indicate whether it would appear in the Operating Activities section (O), in the Investing Activities section (I), or in the Financing Activities section (F). Put an S in the blank if the transaction does not affect cash but is reported in a supplemental schedule of noncash activities. Assume that the company uses the direct method in the Operating Activities section.
_______ 1. A company purchases its own common stock in the open market and immediately retires it.
_______ 2. A company issues preferred stock in exchange for land.
_______ 3. A six-month bank loan is obtained.
_______ 4. Twenty-year bonds are issued.
_______ 5. A customer’s open account is collected.
_______ 6. Income taxes are paid.
_______ 7. Cash sales for the day are recorded.
_______ 8. Cash dividends are declared and paid.
_______ 9. A creditor is given shares of common stock in the company in return for cancellation of a long-term loan.
_______ 10. A new piece of machinery is acquired for cash.
_______ 11. Stock of another company is acquired as an investment.
_______ 12. Interest is paid on a bank loan.
_______ 13. Factory workers are paid.

Answer 1

Answer and Explanation:

The classification is as follows;

1. Financing Activities section (F)

2. S as it does not involve any cash transaction

3. Financing Activities section (F)

4. Financing Activities section (F)

5. Operating Activities section (O)

6. Operating Activities section (O)

7. Operating Activities section (O)

8. Financing Activities section (F)

9. S as it does not involve any cash transaction

10. Investing Activities section (I)

11. Financing Activities section (F)

12. Operating Activities section (O)