Question

chapter 13Identify the type of cash flow activity for each of the following events (operating, investing, or financing). The company determines net cash flow from operating activities by the indirect method: a. Net income Operating b. Paid cash dividends Financing c. Issued common stock Financing d. Issued bonds Financing e. Redeemed bonds Financing f. Sold long-term investments Investing g. Purchased treasury stock Financing h. Sold equipment Investing i. Issued preferred stock Financing j. Purchased buildings Investing k. Purchased patents

Answer 1

Answer:

a. Net income - Operating  

b. Paid cash dividends - Financing

c. Issued common stock - Financing

d. Issued bonds - Financing

e. Redeemed bonds - Financing

f. Sold long-term investments - Investing

g. Purchased treasury stock - Financing

h. Sold equipment - Investing

i. Issued preferred stock - Financing

j. Purchased buildings - Investing

k. Purchased patents - Investing

Explanation

The statement of cash flows is basically made up of three sections: operating, financing and investing activity.

Statement of cash flows, using indirect method is simply a statement that records the cash inflows and outflows after adjusting for non-cash items.

• Operating activities comprise the adjustment of non-cash items that were already added or subtracted from the net income in preparing the income statement in line with accrual accounting. Then, it records the movement in current assets and liabilities.
• The Financing section comprises those activities that are geared towards improving the capital structure of the company like issuance of stocks, cash dividend payment, etc.
• Finally, the Investing activities are those activities involving purchase of equipment or any other assets that would be used in the course of the business to generate revenue.