Question

Assuming a cash flow statement is prepared using the indirect method, indicate the

reporting of the transactions and events listed below by major categories on the

statement. Use the following code letters to indicate the appropriate category under which

the item would appear on the cash flow statement.

Codes:

A

Cash flows from operating activities (Add to profit)

D

Cash flows from operating activities (Deduct from profit)

IA

Cash flows from investing activities

FA

Cash flows from financing activities

Category

1. Common shares are issued for cash.

_____

2. Merchandise inventory increased during the period.

_____

3. Depreciation expense recorded for the period.

_____

4. Building was purchased for cash.

_____

5. Bonds payable were acquired and retired at their carrying value.

_____

6. Accounts payable decreased during the period.

_____

7. Prepaid expenses decreased during the period.

_____

8. Investment in common shares of another company were acquired for

cash.

_____

9. Land is sold for cash at an amount equal to carrying amount.

_____

10. Loss on sale of equipment was recorded on the income

statement.

____

Answer 1

• Requirement

1. Common shares are issued for cash.	FA
_____	Cash flows from financing activities
2. Merchandise inventory increased during the period.	D
_____	Cash flows from operating activities (Deduct from profit)
3. Depreciation expense recorded for the period.	A
_____	Cash flows from operating activities (Add to profit)
4. Building was purchased for cash.	IA
_____	Cash flows from investing activities
5. Bonds payable were acquired and retired at their carrying value.	FA
_____	Cash flows from financing activities
6. Accounts payable decreased during the period.	D
_____	Cash flows from operating activities (Deduct from profit)
7. Prepaid expenses decreased during the period.	A
_____	Cash flows from operating activities (Add to profit)
8. Investment in common shares of another company were acquired for Cash	IA
_____	Cash flows from investing activities
9. Land is sold for cash at an amount equal to carrying amount.	IA
_____	Cash flows from investing activities

No.	Conceptual Notes
1	Cash Flow Statement reflects the Cash Inflows and Outflows during a period of time.
2	Effects of Non - Cash Transaction are adjusted from Net Income.
3	Depreciation Expense, Amortisation expenses are Added back to Net Income in Cash Flow Statement.
4	Decrease in Current Assets OR Increase in Current Liabilities are ADDED to Net Income
5	Increase in Current Assets OR Decrease in Current Liabilities are DEDUCTED from Net Income