____ a. Increase in accounts payable _____ g. Depreciation expense ____ b. Payme
ID: 2421455 • Letter: #
Question
____ a. Increase in accounts payable _____ g. Depreciation expense
____ b. Payment of dividends _____ h. Increase in Inventory
____ c. Decrease in accrued liabilities _____ i. Decrease in accounts receivable
____ d. Issuance of common stock _____ j. Purchase of equipment
____ e. Gain on sale of building
____ f. Loss on sale
1. Indentify each item as a (n)
a) Operating activity -addition to net income (O+), or subtraction from net income (O-)
b) Investing activity -addition to cash flow (1+), or subtraction from cash flow (1-)
c) Financing activity-addition to cash flow (F+), or subtraction from cash flow (F-)
d) Activity that is not used to prepare the indirect cash flow statement (N)
Explanation / Answer
Increase In Accounts Payable: O+ > This is because at the year end you have paid less amount to your suppliers in cash , which would have an increasing effect on cash flow
Payment of Dividends : F- > Cash outflow from company to shareholder
Decrease in Accrued Liabilities: O-
Issuance of Common stock: F+
Gain On sale of building : O- > Net income includes gain on sales and such gains need to be removed and hence are to be deducted
Loss on sales: O+ > Net income includes loss on sales and such loss need to be removed and hence are to be added
Depreciation Expense : O+ > Net income includes non cash expenses which need to be removed and hence are to be added
Increase in Inventory: O-
Decrease in Accounts Receivable : O+ > You have collected more cash which has resulted in decrease in accounts receivable.
Purchase of Equipment: 1- > Purchase of asset would be a cash outflow from investing activity
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