Indicate How Each of the Following Events Should Be Classified

question 32

Essay

Indicate how each of the following events should be classified in a statement of cash flows for the current calendar year.Use the following code: O = operating activities,I = investing activities,and F = financing activities.
Assume use of the direct method.If the event does not involve a cash flow that should be included in the statement of cash flows,use an X.
________ (a)Paid an account payable for inventory purchased in a prior accounting period.
________ (b)On December 28,made a large credit sale;terms,2/10,n/30.
________ (c)Received a dividend from an investment in IBM common stock.
________ (d)Paid a dividend to stockholders.
________ (e)Paid the interest on a note payable to First Bank.
________ (f)Paid the principal amount due on the note payable to First Bank.
________ (g)Transferred cash from a checking account into a money market fund.
________ (h)Made an adjusting entry to record accrued wages payable at the end of the period.
________ (i)Recorded depreciation expense for the current year.
________ (j)Purchased plant assets for cash.
Answer: O
(a)Paid an account payable for inventory purchased in a prior accounting period.
X (b)On December 28,made a large credit sale;terms,2/10,n/30.
O (c)Received a dividend from an investment in IBM common stock.
F (d)Paid a dividend to stockholders.
O (e)Paid the interest on a note payable to First Bank.
F (f)Paid the principal amount due on the note payable to First Bank.
X (g)Transferred cash from a checking account into a money market fund.
X (h)Made an adjusting entry to record accrued wages payable at the end of the period.
X (i)Recorded depreciation expense for the current year.
I (j)Purchased plant assets for cash.
Difficulty: 1 Easy
Topic: Classification of Cash Flows
Learning Objecti: 13-02 Describe how cash transactions are classified in a statement of cash flows.
Bloom's: Remember
AACSB: Analytical Thinking
-The following information was obtained from the Champion Company for the year ending December 31.
Using the direct method,prepare a statement of cash flows.

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Definitions:

Economic Losses

The reduction in financial wealth, goods, or services that results from an event or decision.

Long Run Market Supply Curve

A curve showing the relationship between the price of a good and its supply over a longer period, when all input factors can be varied.

Limited Quantities

A restricted amount of a product or resource available for consumption or use.

Perfectly Elastic

Perfectly elastic describes a situation in market demand where consumers will only buy at one price and any deviation from this price leads to zero demand for the good or service.