You are provided with the following transactions that took place during a recent fiscal year.
Complete the table indicating whether each item (1) should be reported as an operating (O) activity, investing (I) activity, financing (F) activity, or as a noncash (NC) transaction reported in a separate schedule, and (2) represents a cash inflow or cash outflow or has no cash flow effect. Assume use of the indirect approach.
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To determine whether each item should be reported as an operating (O) activity, investing (I) activity, financing (F) activity, or as a noncash (NC) transaction reported in a separate schedule, and whether it represents a cash inflow or cash outflow or has no cash flow effect, you will need to analyze the nature of each transaction. Here's how you can approach it:
1. Start by understanding the definition of each activity category:
- Operating activities: These are the day-to-day activities related to the core operations of the business, such as revenue generation, payments to suppliers, and employee wages.
- Investing activities: These involve the acquisition or disposal of long-term assets, such as property, plant, and equipment or investments in other companies.
- Financing activities: These include transactions related to the company's capital structure, such as borrowing or repaying debt, issuing or buying back shares, or paying dividends.
2. Look at each transaction and determine its nature:
- If the transaction relates to the company's core operations, it should be classified as an operating activity.
- If the transaction involves the acquisition or disposal of long-term assets, it should be classified as an investing activity.
- If the transaction is related to the company's capital structure or financing arrangements, such as borrowing or issuing shares, it should be classified as a financing activity.
- If the transaction does not involve the exchange of cash but still needs to be disclosed, it should be classified as a noncash (NC) transaction reported in a separate schedule.
3. Determine the cash flow effect of each transaction:
- If the transaction results in an increase in cash, it is considered a cash inflow.
- If the transaction results in a decrease in cash, it is considered a cash outflow.
- If the transaction has no direct impact on cash, it has no cash flow effect.
Based on this approach, you can now go through each transaction and classify it accordingly in the table provided.