Question No 1: Major Classifications Of Reported Activities

Question

Question No 1 Major classifications of activities reported inthe statement The major classifications of activities reported in the statement of cash flows are Operating (O), Investing (I), and Financing (F). Classify each of the transactions listed below as: 1. Operating activity—add to net income. 2. Operating activity—deduct from net income. 3. Investing activity. 4. Financing activity. 5. Reported as significant non-cash activity in the notes to the financial statements. The transactions are as follows: - Issuance of ordinary shares - Purchase of land and building - Redemption of bonds - Sale of equipment - Depreciation of machinery - Issuance of bonds for plant assets - Payment of cash dividends - Exchange of furniture for office equipment - Purchase of treasury shares - Loss on sale of equipment - Increase in accounts receivables during the year - Decrease in accounts payable during the year

Dr. Jack HW Helper · Accepted Answer

Question No 1 Major classifications of activities reported inthe statement Introduction Cash flow statements are vital financial documents that categorize cash transactions into operating, investing, and financing activities. Correct classification provides insights into a company's liquidity, investment strategies, and financial structure. This paper classifies a series of transactions based on these categories, considering their impact on the cash flow statement. Classification of Transactions 1. Issuance of Ordinary Shares This transaction involves raising capital through equity issuance, which increases cash flows under the financing activities section. Therefore, it is classified as a financing activity (F), specifically a cash inflow. 2. Purchase of Land and Building Buying land and buildings is an investing activity as it involves acquiring long-term assets. This cash outflow reflects the company's investment in property, plant, and equipment, categorized as investing activity (I). 3. Redemption of Bonds When bonds are redeemed, the company pays back debt, making this a financing activity that results in a cash outflow. Thus, it is classified as financing activity (F). 4. Sale of Equipment Selling equipment generates cash and is classified as an investing activity because it involves disposal of fixed assets, marked as investing activity (I). 5. Depreciation of Machinery Depreciation is a non-cash expense. Since it does not affect cash flows directly, it is reported as a significant non-cash activity in the notes to the financial statements. 6. Issuance of Bonds for Plant Assets Issuing bonds to acquire plant assets is a financing activity (cash inflow) that facilitates investing activities—classified as financing activity (F). 7. Payment of Cash Dividends Dividends paid to shareholders are a financing activity, representing cash outflows to owners. Classified as financing activity (F). 8. Exchange of Furniture for Office Equipment This exchange does not invo

Question No 1: Major Classifications Of Reported Activities ✓ Solved

Question No 1 Major classifications of activities reported inthe statement

Sample Paper For Above instruction

Introduction

Classification of Transactions

1. Issuance of Ordinary Shares

2. Purchase of Land and Building

3. Redemption of Bonds

4. Sale of Equipment

5. Depreciation of Machinery

6. Issuance of Bonds for Plant Assets

7. Payment of Cash Dividends

8. Exchange of Furniture for Office Equipment

9. Purchase of Treasury Shares

10. Loss on Sale of Equipment

11. Increase in Accounts Receivables

12. Decrease in Accounts Payable

Conclusion

References