Question

Chapter 14: Classifying items on the indirect statement of cash flows

Learning Objective 1, 2

Destiny Corporation is preparing its statement of cash flows by the indirect method. Destiny has the following items for you to consider in preparing the statement:

a.  Increase in accounts payable

b. Payment of dividends

c.  Decrease in accrued liabilities

d. Issuance of common stock

e.  Gain on sale of building

f.  Loss on sale of land

g.  Depreciation expense

h. Increase in merchandise inventory

i.   Decrease in accounts receivable

j.  Purchase of equipment

k. Acquire land and a building by issuance of notes payable

Identify each item as a(n):

•   Operating activity—addition to net income  or subtraction from net income

•   Investing activity—cash inflow  or cash outflow

•   Financing activity—cash inflow  or cash outflow

•   Non-cash investing and financing activity (NIF)

•   Activity that is not used to prepare the indirect statement of cash flows (N)

Answer 1

Answer:

a	Increase in accounts payable	Operating activity	Addition to net income
b	Payment of dividends	Financing Activity	Cash Outflow
c	Decrease in accrued liabilities	Operating activity	Subtraction from net income
d	Issuance of common stock	Financing Activity	Cash Inflow
e	Gain on sale of building	Operating activity	Subtraction from net income
f	Loss on sale of land	Operating activity	Addition to net income
g	Depreciation expense	Operating activity	Addition to net income
h	Increase in merchandise inventory	Operating activity	Subtraction from net income
i	Decrease in accounts receivable	Operating activity	Addition to net income
j	Purchase of equipment	Investing activity	Cash Outflow
k	Acquire land and a building by issuance of notes payable	(N)	(N)