repairs next year mining Cash Flow Effects (AP9-5) P9-10 of the following transa
ID: 2572215 • Letter: R
Question
repairs next year mining Cash Flow Effects (AP9-5) P9-10 of the following transactions, determine whether cash flows from operating activities will same: decrease, or remain the s Purchased merchandise on credit Paida psyroll for the month but did not pay it. account payable in cash rued payro money from the bank. The term of the note is 90 days. sified a long-term note as a current liability Diclosed a contingent liability based on a pending lawsuit. Paid accrued interest expense, ck the bank for money borrowed in (d). Ignore interest. ollected cash from a customer for services that will be performed in the next accounting peri ic, deferred revenues are recorded). P9-11Explanation / Answer
Answer for subpoinit a:
Purchase of merchandise on credit increases accounts payable, as cash is not going out of business, it increases the cash flow from operating activities.
Answer for subpoint b:
Account payable is paid in cash, it means cash is paid out, this decreases the cash from operating activities.
Answer for subpoint c:
Accrued payroll for the month and not paid, is incresing the current liability and hence it increases cash from operating activities.
Answer for subpoint d:
Borrowing of money from the bank and term of the note is 90 days, as term is short term it is to be considered as current liability. As this activity increases current liability, it means it increases cash from operating activities.
Answer for subpoint e:
Reclassification of long term note as a current liability. As there is not actual cash outflow or inflow, this does not impact cash flows from operating activities.
Answer for subpoint f:
Paid accrued interest expense, this reduces liability and cash is paid out, hence, it reduces cash from operating activities.
Answer for subpoint g:
Contingent liability does not impact cash flows as it is a off balance sheet item.
Answer for subpoint h:
Money on short term note paid, reduces cash hence it is reduces the cash from operating activities
Answer for subpoint i:
Cash received for services yet to be performed is treated as current liability and is discosed as unearned revenue, hence, it increases cash from operating activities.
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