Question

Novak Corporation is preparing its 2020 statement of cash flows, using the indirect method. Presented below is a list of items that may affect the statement. Using the code below, indicate how each item will affect Novak's 2020 statement of cash flows.
Code Letter     Effect
A Added to net income in the operating section
D Deducted from net income in the operating section
R-I Cash receipt in investing section
P-I Cash payment in investing section
R-F Cash receipt in financing section
P-F Cash payment in financing section
N Noncash investing and financing activity

Items
_____ a. Purchase of land and building.
_____ b. Decrease in accounts receivable.
_____ c. Issuance of stock.
_____ d. Depreciation expense.
_____ e. Sale of land at book value.
_____ f. Sale of land at a gain.
_____ g. Payment of dividends.
_____ h. Increase in accounts receivable.
_____ i. Purchase of available-for-sale debt investment.
_____ j. Increase in accounts payable.
_____ k. Decrease in accounts payable.
_____ l. Loan from bank by signing note.
_____ m. Purchase of equipment using a note.
_____ n. Increase in inventory.
_____ o. Issuance of bonds.
_____ p. Redemption of bonds payable.
_____ q. Sale of equipment at a loss.
_____ r. Purchase of treasury stock.

Answer 1

Answer:

Code               Transaction

_P-I                 a. Purchase of land and building.

A.                    b. Decrease in accounts receivable.

R-F                   c. Issuance of stock.

A.                     d. Depreciation expense.

R-I                    e.Sale of land at book value.

R-I                    f. Sale of land at a gain.

P-F                   g. Payment of dividends.

D                      h. Increase in accounts receivable

P-I                     i. Purchase of available-for-sale debt investment.

A                       j. Increase in accounts payable.

D                       k. Decrease in accounts payable.

R-F                   l. Loan from bank by signing note.

N                      m. Purchase of equipment using a note.

D                      n. Increase in inventory.

R-F                   o. Issuance of bonds

P-F                   p. Redemption of bonds payable.

R-I                    q. Sale of equipment at a loss.

P-I                    r. Purchase of treasury stock.

Explanation:

Cash flow is categorized into three sections: operating, investing and financing activities.

Operating activities comprise of all cash activities relating to cash received from customers and cash paid to suppliers and other cash used in operation during the period.

Investing activities comprise of all cash activities relating to acquisition and disposal of assets and other investment.

Financing activities comprise of all cash activities relating to suppliers of capital, including both equity owners and debt holders.