Question

Exercise1. Selected transactions for the SJH Company are listed below.
1. Collected accounts receivable.
2. Declared and paid dividends on ordinary shares.
3. Sold long-term investments for cash.
4. Issued ordinary shares for equipment.
5. Repaid five year note payable.
6. Paid employee wages.
7. Converted bonds payable to ordinary shares.
8. Acquired long-term investment with cash.
9. Sold buildings and equipment for cash.
10. Sold merchandise to customers.

Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity,
(c) a financing activity, or (d) a noncash investing and financing activity.


Exercise2.
(a) Identify the alternatives for presenting significant non-cash activities in financial statements.
(b) Give three or four examples of significant non-cash transactions.

Answer 1

Exercise1

1. Collected accounts receivable.

Collection from debtors is an inflow of cash under oprating activity.

2. Declared and paid dividends on ordinary shares:

Distribution of dividend is an outflow of cash under financing activity

3. Sold long-term investments for cash:

Sales of long-term investment is an inflow of cash under investment activity.

4. Issued ordinary shares for equipment:

Issuance of share is an non-cash investing and financing activity.

5. Repaid five year note payable:

Payment of long-term debt is an outflow of cash under financing activity.

6. Paid employee wages:

Payment of wages is an outflow of cash under operating activity.

7. Converted bonds payable to ordinary shares.

Conversion of bonds to ordinary share is a non-cash investing and financing activity.

8. Acquired long-term investment with cash:

Investing cash into long-term investment is an outflow of cash under investment activity.

9. Sold buildings and equipment for cash.

Sales of fixed asset is an inflow of cash under investment activity.

10. Sold merchandise to customers.

Sales of merchandise to customer is an inflow of cash under operating activity.

Exercise2

(a) Alternatives for presenting significant non-cash activities in financial statements.

Non-cash activities are not in the scope of accounting. Although some major non-cash activities may have significant impact on present or future performance of the organization and these types of item must be reported along with the financial statement. As these can not be sown within the financial statement, both IFRS and US GAAP are instructed to add these non-cash activities , either in the bottom of a cash flow statement as a foot note or include this as notes to the financial statement.

(b) Some examples of non cash transaction:

• Issuance of bonus share
• Exchange of non monitory assets with other non monetary asset.
• Purchase of asset by issuing stock or debt fund
• Converting bonds (convertible) into common stock
• Issuing common stock for convertible preference share