Question

An analysis of comparative balance sheets, the current year's income statement, and the general ledger accounts of Wellman Corp. uncovered the following items. Assume all items involve cash unless there is information to the contrary.Indicate how each item should be classified in the statement of cash flows using these four major classifications: a. operating activity (indirect method)b. investing activityc. financing activityd. significant noncash investing and financing activity. (1) Exchange of land for patent. (2) Sale of building at book value. (3) Payment of dividends.(4) Depreciation.(5) Receipt of dividends on investment in stock.(6) Receipt of interest on notes receivable. (7) Issuance of capital stock. (8) Amortization of patent. (9) Issuance of bonds for land.(10) Purchase of land. (11) Conversion of bonds into common stock. (12) Loss on sale of land.(13) Retirement of bonds.

Answer 1

Answer:

Explanation:

There are three types of activities in the cash flow statement which are described below:  

1. Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.  

These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income  and the dividend and interest is received is recorded in this activity.

The loss and gain on sale of the assets is also recorded and amortization on intangible asset is also recorded

2. Investing activities: It records those activities which include purchase and sale of the long term assets. The purchase is an outflow of cash whereas sale is an inflow of cash

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance. The issue of shares is an inflow of cash whereas redemption and dividend is an outflow of cash.

The categorization is shown below:

(1) Exchange of land for patent - Non-cash investing and financing activity as it does not involve any cash transaction

(2) Sale of building at book value - Investing activity

(3) Payment of dividends - Financing activity

(4) Depreciation - Operating activity

(5) Receipt of dividends on investment in stock - Operating activity

(6) Receipt of interest on notes receivable - Operating activity

(7) Issuance of capital stock -  Financing activity

(8) Amortization of patent - Operating activity

(9) Issuance of bonds for land - Non-cash investing and financing activity as it does not involve any cash transaction

(10) Purchase of land - Investing activity

(11) Conversion of bonds into common stock - Non-cash investing and financing activity as it does not involve any cash transaction

(12) Loss on sale of land -  Operating activity

(13) Retirement of bonds - Financing activity