Question

Exercise 12-01 Kiley Corporation had these transactions during 2022. Analyze the transactions and indicate whether each transaction is an operating activity, investing activity, financing activity, or noncash investing and financing activity. (a) Purchased a machine for $30,000, giving a long-term note in exchange. select an option Financing ActivitiesInvesting ActivitiesOperating ActivitiesNoncash Investing and Financing Activities (b) Issued $50,000 par value common stock for cash. select an option Operating ActivitiesNoncash Investing and Financing ActivitiesFinancing ActivitiesInvesting Activities (c) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000. select an option Investing ActivitiesOperating ActivitiesNoncash Investing and Financing ActivitiesFinancing Activities (d) Declared and paid a cash dividend of $13,000. select an option Financing ActivitiesInvesting ActivitiesOperating ActivitiesNoncash Investing and Financing Activities (e) Sold a long-term investment with a cost of $15,000 for $15,000 cash. select an option Financing ActivitiesInvesting ActivitiesOperating ActivitiesNoncash Investing and Financing Activities (f) Collected $16,000 from sale of goods. select an option Operating ActivitiesNoncash Investing and Financing ActivitiesFinancing ActivitiesInvesting Activities (g) Paid $18,000 to suppliers.

Answer 1

Based on the question, we can classify the activities into the following :-

a.) Purchased a machine for $30,000, giving a long-term note in exchange.

This transaction can be termed as Noncash Investing and financing activity. As can be observed here, the company has purchased a machine while giving a long term note in exchange for the machine. There is no element of cash involved in the transaction and as such, would be appropriately classified uner the Noncash Investing and Financing activity.

b.) Issued $50,000 par value common stock for cash.

The transaction in question here can be classified as a Financing activity. The company has issued the shares of the company in return for cash . It is the funds that the company has generated to finance its business and hence, would be appropriate to classify under this section.

c.) Issued $200,000 par value common stock upon conversion of bonds having a face value of $200,000.

This transaction is a Noncash Investing and financing activity. The bonds with a face value of $200,000 have been converted into a par value common stock and as such there is no cash involved in the process.

d.) Declared and paid a cash dividend of $13,000.

The payments of the dividends are considered to be a Financing activity for the purpose of Cash flow statements. This is because these are payments and rewards made to the shareholders and they are ultimately rewards being paid to shareholders and would most reasonably relate to the cost of obtaining financial resources.  

e.) Sold a long-term investment with a cost of $15,000 for $15,000 cash.

This is classifed as an Investing activity. Please note that the sale of investments is not a regular transaction for the business and since the long term investment that the company was holding has been sold, the proceeds received from it would be reported as an Investing activity.

f.) Collected $16,000 from sale of goods.

This transaction is classified as an Operating activity. Operating activities are activities that a business engages in on a day to day basis in a business. As the cash collected is on account of the sales of goods made, this transaction would hence be reported as part of the Operating activity.

g.) Paid $18,000 to suppliers.

This transaction is classified as an Operating activity. Procurements from suppliers and distributions to retail houses or customers are the fundamental duties of any business. These transactions are the general operational transactions of the company and as such, it would be appropriate to report these under Operating activity.