Question

Transactions Falcon's Related Account 1. Falcon purchases common stock of Wildcat. Investment2. Falcon borrows from Wildcat by signing a note Notes payable3. Wildcat pays dividends to Falcon Dividend revenue4. Falcon provides services to Wildcat Service revenue5. Falcon pays interest to Wildcat on borrowing Interest expense Required:For each transaction, indicate whether Falcon would report the related account in the balance sheet or income statement. For accounts in the balance sheet, indicate whether it would be classified as an asset, liability, or stockholders’ equity. For accounts in the income statement, indicate whether it would be classified as a revenue or an expense. Indicate whether each transaction is classified as operating, investing, or financing activity.

Answer 1

Answer:

1. Transaction will have effects on Balance Sheet in the Assets Section and will be classified as an Investing Activity in the Statement of Cash flows.

2. Transaction will have effects on Balance Sheet in the Liability Section and will be classified as a Financing Activity in the Statement of Cash flows.

3. Transaction will have effects on Income Statement in the Revenue Section and will be classified as an Operating Activity in the Statement of Cash flows.

4. Transaction will have effects on Income Statement in the Revenue Section and will be classified as an Operating Activity of the Statement of Cash flows.

5. Transaction will have effect on Income Statement in the Expense Section and will be classified as a Financing Activity in the Statement of Cash flows.

Explanation:

1. Falcon purchases common stock of Wildcat. This is classified in the investments tab of the assets account. This will be reflected in balance sheet. The transaction is classified in the investing activity.

2. Falcon borrows from Wildcat and signs Notes payable this will have effects in balance sheet liability account. This is financing activity.

3. Falcon receives Dividend revenue from Wildcat. This will be reflected in income statements as revenue. It will operating activity.

4. Falcon provides services to Wildcat , this is reflected in income statement as revenue. This will appear under operating activity.

5. Falcon pays interest on the borrowings to Wildcat. This is income statement items and is an expense. It belongs to financing activity.