Question

Classify each of these transactions by type of cash flow activity (operating, investing, or financing). (Hint: Refer to Illustration 12-1.) 1. Issued $160,000 of bonds payable. choose the type of cash flow activity 2. Paid utilities expense. choose the type of cash flow activity 3. Issued 500 shares of preferred stock for $45,000. choose the type of cash flow activity 4. Sold land and a building for $250,000. choose the type of cash flow activity 5. Loaned $30,000 to Dead End Corporation, receiving Dead End’s 1-year, 12% note. choose the type of cash flow activity

Answer 1

Answer:

1 - Financing activity

2- Operating activity

3- Financing activity

4- Investing activity

5- Investing activity

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 long term assets

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

So the categorization is shown below:

1. Issued $160,000 of bonds payable - cash flow from financing activity

2. Paid utilities expense - cash flow from operating activity

3. Issued 500 shares of preferred stock for $45,000 - cash flow from financing activity

4. Sold land and a building for $250,000 - cash flow from investing activity

5. Loaned $30,000 to Dead End Corporation, receiving Dead End’s 1-year, 12% note. - cash flow from investing activity