Question

g Use the following abbreviations to answer this question: O Operating activities item I Investing activities item F Financing activities item Classify each of the following transactions according to whether they are operating, financing, or investing activities: a. Payment of employee wages Select a type of activity. b. Cash collected from customers for sales Select a type of activity. c. Payment of dividends Select a type of activity. d. Purchase of land for an office building Select a type of activity. e. Repayment of debt owed to a financial institution Select a type of activity. f. Purchase of shares of another company Select a type of activity. g. Cash received as rent payment from a tenant in a building owned by the company Select a type of activity. h. Issuance of shares Select a type of activity.

Answer 1

Answer and Explanation:

The cash flow statement includes three types of activities which are listed below:

1. Operating activities: It includes those transactions that after net income affect the working capital. It would subtract the increase in current assets and a decrease in current liabilities, while adding the reduction in current assets and a rise in current liabilities.

It would adjust those changes in working capital. In addition, the depreciation costs are added to the net income and the loss on the sale of assets is added, while the benefit on the sale of assets is subtracted

2. Investing activities: it tracks activities that involve purchasing and selling long-term properties. The purchase is a cash outflow while the sale is a cash inflow

3. Financing activities: it records activities that have an impact on long-term liability and equity balance of shareholders. Share issue is a cash inflow whereas redemption and dividend are cash outflows.

Based on this the classification are as follows

a. Payment of employee wages = Operating activities O = Outflow of cash deducted from the net income

b. Cash collected from customers for sales  = Operating activities O = Inflow of cash added from the net income

c. Payment of dividends = Financing activities F = Outflow of cash represents in a negative sign

d. Purchase of land for an office building  = Investing activities I = Outflow of cash represents in a negative sign

e. Repayment of debt owed to a financial institution = Financing activities F = Outflow of cash represents in a negative sign

f. Purchase of shares of another company = Financing activities F

g. Cash received as rent payment from a tenant in a building owned by the company = Operating activities O = Inflow of cash added from the net income

h. Issuance of shares =  Financing activities F = Inflow of cash represents in a positive sign