You are provided with the following transactions that took place during a recent fiscal year.
Instructions
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.
Transaction
Where Reported
Cash Inflow, Outflow,
or No Effect?
(a) Recorded depreciation expense on the plant assets. FOINC Cash inflowNo cash flow effectCash outflow
(b) Recorded and paid interest expense. FNCOI Cash outflowCash inflowNo cash flow effect
(c) Recorded cash proceeds from a sale of plant assets. NCFOI No cash flow effectCash inflowCash outflow
(d) Acquired land by issuing common stock. OINCF No cash flow effectCash outflowCash inflow
(e) Paid a cash dividend to preferred stockholders. IONCF Cash outflowCash inflowNo cash flow effect
(f) Distributed a stock dividend to common stockholders. IOFNC Cash outflowCash inflowNo cash flow effect
(g) Recorded cash sales. FOINC Cash inflowNo cash flow effectCash outflow
(h) Recorded sales on account. IONCF No cash flow effectCash inflowCash outflow
(i) Purchased inventory for cash. FOINC Cash outflowCash inflowNo cash flow effect
(j) Purchased inventory on account. NCOFI Cash outflowNo cash flow effectCash inflow
Question Attempts: 0 of 3 used
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To determine where each transaction should be reported and whether it represents a cash inflow, cash outflow, or no cash flow effect, we need to understand the different types of activities in financial statements and apply certain rules.
1. Operating Activities (O): These activities involve the primary revenue-generating activities of the company. Examples include cash inflows from sales, interest received, and cash outflows for operating expenses, interest paid, and income taxes.
2. Investing Activities (I): These activities involve the acquisition and disposal of long-term assets. Examples include cash inflows from the sale of assets, investments, and cash outflows for the purchase of assets and investments.
3. Financing Activities (F): These activities involve raising capital from investors and repaying capital providers. Examples include cash inflows from issuing bonds or stocks and cash outflows for repaying debt, paying dividends, or buying back stocks.
4. Noncash Transactions (NC): These transactions don't have a direct impact on cash flow but are reported in a separate schedule to disclose important information.
Now let's analyze each transaction:
(a) Recorded depreciation expense on the plant assets.
- Where Reported: Operating (O) Activity
- Cash Inflow, Outflow, or No Effect: No cash flow effect
(b) Recorded and paid interest expense.
- Where Reported: Financing (F) Activity
- Cash Inflow, Outflow, or No Effect: Cash outflow
(c) Recorded cash proceeds from a sale of plant assets.
- Where Reported: Noncash (NC) Transaction reported in a separate schedule
- Cash Inflow, Outflow, or No Effect: Cash inflow
(d) Acquired land by issuing common stock.
- Where Reported: Operating (O) Activity
- Cash Inflow, Outflow, or No Effect: Cash inflow
(e) Paid a cash dividend to preferred stockholders.
- Where Reported: Financing (F) Activity
- Cash Inflow, Outflow, or No Effect: Cash outflow
(f) Distributed a stock dividend to common stockholders.
- Where Reported: Financing (F) Activity
- Cash Inflow, Outflow, or No Effect: No cash flow effect
(g) Recorded cash sales.
- Where Reported: Operating (O) Activity
- Cash Inflow, Outflow, or No Effect: Cash inflow
(h) Recorded sales on account.
- Where Reported: Operating (O) Activity
- Cash Inflow, Outflow, or No Effect: No cash flow effect
(i) Purchased inventory for cash.
- Where Reported: Operating (O) Activity
- Cash Inflow, Outflow, or No Effect: Cash outflow
(j) Purchased inventory on account.
- Where Reported: Noncash (NC) Transaction reported in a separate schedule
- Cash Inflow, Outflow, or No Effect: No cash flow effect
Remember that this table assumes the use of the indirect approach for the statement of cash flows. The answer key will indicate whether each item should be reported as an operating (O), investing (I), financing (F), or noncash (NC) activity, and the associated cash inflow, cash outflow, or no cash flow effect.