Question

Determine how the following scenarios affect the firm's cash position. Identify whether the scenario describes a financing, investing, or operating activity (as defined on the Statement of Cash Flows). Scenario: Operating Activity Investing Activity Financing Activity Pay preferred stock dividends Increase accrued liabilities Sell some old equipment Issue shares of common stock Increase inventory holdings Buy property for a future factory Sell a tract of land it has held for years

Answer 1

Answer:

Explanation:

Basically there are three types of activities:

1. Operating activities: It includes those transactions which affect the working capital, and it records transactions of cash receipts and cash payments.

2. Investing activities: It records those activities which include purchase and sale of the fixed assets

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance.  

Based on the above explanation, the given transactions would come under these activities. This is shown below:

Pay preferred stock dividends - Financing activity

Increase accrued liabilities - Operating activity

Sell some old equipment - Investing activity

Issue shares of common stock -  Financing activity

Increase inventory holdings - Operating activity

Buy property for a future factory - Investing activity

Sell a tract of land it has held for years - Investing activity