E11–4 Wi-Fi, Inc., has the following selected transactions during the year. Issu

Question

E11–4 Wi-Fi, Inc., has the following selected transactions during the year.

Issues $20 million in bonds.

Purchases equipment for $80,000.

Pays a $20,000 account payable.

Collects a $15,000 account receivable.

Exchanges land for a new patent. Both are valued at $300,000.

Declares and pays a cash dividend of $100,000.

Loans $50,000 to a customer, accepting a note receivable.

Pays $75,000 to suppliers for inventory.

Required: Indicate in which section of the statement of cash flows each of these items would be reported: operating activities (indirect method), investing activities, financing activities, or a separate noncash activities note.

Explanation / Answer

Solution:

Issues $20 million in bonds. --- Financing Activity

Purchases equipment for $80,000 --- Investing Activity

Pays a $20,000 account payable --- Under indirect method it is not shown under any activity because indirect method considers only accrual basis item in operating activity

Collects a $15,000 account receivable --- Under indirect method it is not shown under any activity because indirect method considers only accrual basis item in operating activity

Exchanges land for a new patent. Both are valued at $300,000 --- Non cash cash activities

Declares and pays a cash dividend of $100,000. – Financing Activity

Loans $50,000 to a customer, accepting a note receivable – Investing Activity

Pays $75,000 to suppliers for inventory --- --- Under indirect method it is not shown under any activity because indirect method considers only accrual basis item in operating activity

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