Question

Mercury Corporation issued 7,000 shares of no-par common stock for $15 per share. Mercury also issued 2,800 shares of $70 par, 6 percent noncumulative preferred stock at $80 per share. Required a. Record these events in a horizontal statements model. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). Use NA to indicate that an element was not affected by the event.

Answer 1

Answer:

Issue of  7,000 shares of no-par common stock for $15 per share

Financing Activity (FA).

Issue of 2,800 shares of $70 par, 6 percent noncumulative preferred stock at $80 per share

Financing Activity (FA)

Explanation:

Issue of  7,000 shares of no-par common stock for $15 per share

This represents capital funding and is included in the Cash Flow Statement as Cash Flow from Financing Activity.

Issue of 2,800 shares of $70 par, 6 percent noncumulative preferred stock at $80 per share

This transaction also represents capital funding and is included in the Cash Flow Statement as Cash Flow from Financing Activity.

Answer 2

Answer:

1. Issue of 7,000 shares at $15 per share is financing activity, but not operating nor investing activity.

2. Issue of 2,800 noncum. preferred stock at $80/shares financing activity, but not operating nor investing activity.

Explanation:

How the activities will appear in the Mercury Corporation Cash Flow Statement presented as follows:

Mercury Corporation Cash Flow Statement

                                                                                                    $

Operating activity (OA)  

Issued 7,000 shares at $15 per share                                     NA

Issued 2,800 noncum. preferred stock at $80/share            NA

Investing activity (IA)

Issued 7,000 shares at $15 per share                                      NA

Issued 2,800 noncum. preferred stock at $80/share             NA

Financing activity (FA)

Issued 7,000 shares at $15 per share                                   105,000

Issued 2,800 noncum. preferred stock at $80/share         224,000

Total cash generated                                                             329,000