Question

Classification of Cash Flows A review of the financial records for Rogers, Inc., uncovered the following items: Rogers uses the indirect method to prepare the operating activities of its statement of cash flows. Required: Indicate whether each item should be classified as a cash flow from operating activities, cash flow from investing activities, cash flow from financing activities, or noncash investing and financing activity. a. Collected accounts receivable b. Paid cash to purchase equipment c. Received cash from the issuance of bonds d. Paid interest on long-term debt e. Sold equipment at book value f. Depreciation on equipment g. Issued common stock for land h. Paid rent on building for the current period i. Paid cash to settle an account payable j. Declared and paid dividends to stockholders k. Received cash dividend on investment l. Repaid the principal amount of long-term debt m. Amortization of a copyright n. Sold a long-term investment at a gain

Answer 1

Rogers, Inc.

Classification of Cash Flows:

1. Cash Flow from Operating Activities:

a) Collected accounts receivable

h) Paid rent on building for the current period

i) Paid cash to settle an account payable

2. Cash Flow from Investing Activities:

b) Paid cash to purchase equipment

e) Sold equipment at book value

k) Received cash dividend on investment

n) Sold a long-term investment at a gain

3. Cash Flow from Financing Activities:

c) Received cash from the issuance of bonds

d) Paid interest on long-term debt

j) Declared and paid dividends to stockholders

l) Repaid the principal amount of long-term debt

4. Non cash from investing and financing activities:

f) Depreciation equipment

g) Issued common stock for land

m) Amortization of a copyright

Step-by-step explanation:

1. Cash Flow from Operating Activities: This classification in the Cash Flow Statement indicates how cash or resources are generated and used for funding ongoing operations. Using the indirect method of preparing Cash Flow Statement, it includes net income and its adjustments, including expenses, and changes in working capital items.

This depicts the cash-generating abilities of the entity from its core business activities.

2. Cash Flow from Investing Activities: This section of the Cash Flow Statement shows the cash generated and consumed with regard to investments. They include cash affecting purchase of physical assets, securities, and investments. It shows the long-term use of resources.

3. Cash Flow from Financing Activities: Funds used to fund the company are depicted in this section of the Cash Flow Statement. All transactions involving, equity, debt, and dividends are financing activities. Its focus is on how a firm raises capital to finance the business, including repayment of the capital.

4. Non cash from investing and financing activities: These are investing and financing activities that do not involve the use of cash. Example, when bonds are sold to finance the purchase of equipment, there is no cash exchange.