Question
In: Accounting
Identify which section of the statement of cash flows (using the indirect method) would present information...
Identify which section of the statement of cash flows (using the indirect method) would present information regarding the following activities. (Use O for operating, I for investing, or F for financing).
Blank 1: Cash sales
Blank 2: Paid a dividend
Blank 3: Purchased a new piece of equipment
Blank 4: Issued 10,000 shares of common stock
Blank 5: Paid cash wages
Question options:
| Blank # 1 | |
| Blank # 2 | |
| Blank # 3 | |
| Blank # 4 | |
| Blank # 5 |
Solutions
Expert Solution
Answer:
Under indirect method of Cash flows
| Blank # 1 | NA |
| Blank # 2 | F |
| Blank # 3 | I |
| Blank # 4 | F |
| Blank # 5 | NA |
*NA= Not applicable, F-Financing activity, I-Investing activity
Explanation:
| Transaction | Activity | Explanation | |
| Blank 1 | Cash sales | Operating Activity | It is come under Operating activity in 'Direct method'. |
| Blank 2 | Paid a dividend | Financing Activity | It is come under Financing activity in both 'Direct and Indirect method' |
| Blank 3 | Purchased a new piece of equipment | Investing Activity | It is come under Investing activity in both 'Direct and Indirect method' |
| Blank 4 | Issued 10,000 shares of common stock | Financing Activity | It is come under Financing activity in both 'Direct and Indirect method' |
| Blank 5 | Paid cash wages | Operating Activity | It is come under Operating activity in 'Direct method'. |
Note:
In Indirect method,
Non-Cash items & Changes in current assets and current liabilities to be add/(less) to the net income.
Hence, Cash Sales & Paid cash wages not come under operating activity in 'Indirect method'.
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