Question

Bald Eagle, Inc., had the following transactions for the year ended December 31, Year 7. Select from the options list provided the best classification for each activity. Each choice may be used once, more than once, or not at all.
Cash Flow Classification

1. Purchased equipment for $30,000
2. Sold available-for-sale securities for $7,000
3. Paid income taxes of $40,000
4. Issued 40,000 shares of common stock, $2.50 par
5. Paid $2,000 interest
6. Paid $10,000 cash dividends to shareholders
7. Received $1,500 interest
8. Sold land for $17,000
9. Paid $7,000 to vendors for inventory

Answer 1

The best classification of each transaction and activity of Bald Eagle, Inc. for the year ended December 31, Year 7 is as follows:

Cash Flow                                                                      Classification

1. Equipment Purchase $30,000                                 Investing Activity

2. Sale of available-for-sale securities $7,000           Investing Activity

3. Payment of income taxes $40,000                        Operating Activity

4. Issuance of 40,000 shares at $2.50 par                Financing Activity

5. Payment of interest $2,000                                    Operating Activity

6. Dividend payment $10,000                                    Financing Activity

7. Received $1,500 interest                                        Operating Activity

8. Sold land for $17,000                                              Investing Activity

9. Payment of $7,000 to vendors for inventory        Operating Activity

What are cash flow activities?

Cash flow activities that affect the Cash Flow Statement include:

• Operating Activity
• Investing Activity
• Financing Activity.

Options List:

Operating Activity

Investing Activity

Financing Activity

Depends on nature and purpose

Not reported on Bald Eagle's Statement of Cash Flows

Thus, the correct classification of the cash flow activities has been done.

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