5. Grey Co had the following transactions during 2018: 1. issued $50,000 par val

Question

5. Grey Co had the following transactions during 2018: 1. issued $50,000 par value common common stock for cash. 2. Collected $11,000 of accounts receivable 3. declared and paid a cash dividend of $25,000 4. sold a long-term investment with a cost of $15,000 for $20,000 5. paid $14,000 of accounts payable 6. bought a machine for $30,000, giving a lon-term note in exchange, indicate whether each of the transactions resulted from operating, investing, fina or noncash investing and financing activities.

Explanation / Answer

1.Issued $50,000 par value common stock for cash- Financing Activity

Explanation:  Any type of cash flow which affects equity and long-term liabilities accounts are categorized as a financing activity. It also includes notes payable and dividend payable accounts. Financing activities transactions result either in an increase/decrease in equity or long-term liabilities of an organization. In the above scenario, the equity of the organization will increase by $50,000.

2.Collected $11,000 of account receivables- Operating Activity

Explanation: Operating activities of an organization are main revenue generating receipts other than investing and financing activities. These activities include all activities affecting income statement, current assets and current liabilities except short-term investment, notes receivable/payable and dividend payable accounts.

3.Declared and paid a cash dividend of $ 25,000- Financing Activity

Explanation: Any type of cash flow which affects equity and long-term liabilities accounts are categorized as financing activity it also includes notes payable and dividend payable accounts. Financing activities transactions result in an increase/decrease in equity or long-term liabilities of an organization. In the above scenario, the cash of the organization will decrease by $25,000.

4.Sold a long-term investment with a cost of $ 15,000 for $ 20,000- Investing Activity

Explanation:  Investing activities pertains to a transaction of a long-lived asset, short-term investments, and notes receivable accounts. These activities result in the acquisition or disposal of non-current assets.

5.Paid $14,000 of accounts payable-Operating Activity

Explanation: Operating activities of an organization are main revenue generating receipts other than investing and financing activities. These activities include all activities affecting income statement, current assets and current liabilities except short-term investment, notes receivable/payable and dividend payable accounts.

6. Bought a machine for $30,000, giving a long-term note in exchange-Non-cash investing and financing activity.

Explanation: Non-cash investing and financing activities include all type of activities which does not involve any cash flow. These transactions can be classified in this activity such as short-term investment, notes payable/receivable, long-lived assets, long-term liabilities and equity but not having any cash element in it.

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