For each of the following transactions, indicate whether operating (O), investin
ID: 1120732 • Letter: F
Question
For each of the following transactions, indicate whether operating (O), investing (1), or financing activities (F), or none of the activities (NE) are affected and whether the effect is a cash inflow (+) or outflow (), or (NE) if the transaction has no effect on cash TIP: Think about the journal entry recorded for the transaction. The transaction affects net cash flows if and only if the account Cash is affected. Transaction Activity Cash Flow 1. Purchased a new building with cash. 2. Recorded and paid income taxes to the federal government. 3. Issued shares of stock for cash. 4. Prepaid rent for the following period. 5. Paid cash to purchase new equipment. 6. Issued long-term promissory notes for cash. 7. Collected payments on account from customers 8. Recorded and paid salaries and wages to employees.Explanation / Answer
1) It is an investing activity as the cash is being used to improve the investment by putting money into new building. It is for long term.
Cash flow will be negative as cash is used to purchase a building. so cash goes out and building comes in.
2) It will come under operating activity as this a regular payment done by the business and it will lead to negative cash flow as the cash will go out of the business to pay the income tax.
3) Financial activity as it is issuing stock which will be used to finance the business. Since stocks are used so cash will come into the business so cashflow will be positive.
4) Rent come under operating expense as it a regualr expense which need to be paid. But It is a non cash expense as it is already prepaid for this current period.
5) It will be investing activity as cash is being invested to but equipment that will have long term utility. Sice cash is going out it will have negative cash flow.
6) It will be financial activity as it issuing of financial papers. It will have positive cash flow as issuing of promisory note will led to increase in cash.
7) It will come in operating activity. and it will have positive cash flow.
8) Operating activity and negative cash flow.
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