The following transactions occurred for a company that uses the direct method to

Question

The following transactions occurred for a company that uses the direct method to prepare its statement of cash flows. a.______ A company purchases its own common stock in the open market and market and immediately retires it. b.________ A company issues common stock in exchange for land. c. ________ A six-month bank loan is obtained. d. ________ Thirty-year bonds are issued. e._______ A customer pays the balance in an open account. f. _________ Income taxes are paid. g.__________ Cash sales are recorded. h. _________ Cash dividends are declared and paid. i. ________ A creditor is given common stock in exchange for a long-term note. j. ______ A new piece of machinery is acquired for cash. k. ______ Stock of another company is acquired as an investment. i. ________ Interest is paid on a bank loan. m. __________ Worker are paid for one week's wages. For each of the preceding transactions, fill in the blank to indicate whether it would appear in the operating activties section (o), in th eactivities section (l), or in the financing activities section (F.) Put an (S) in the blank if the transaction does not affect cash but is reported in a supplemental schedule of non cash activities..

Explanation / Answer

a) F - Since it relates to how company finances its activity.

b) S - Since no cash is involved.

c) F- Since it relates to how company finances its activity.

d) F- Since it relates to how company finances its activity.

e) O - Since it relates to the business operations.

f) O - Since it relates to the business operations.

g) O - Since it relates to the business operations.

h) F- Since it is payment made to the financers of the business.

i) S - Since no cash is involved.

j) I- Since it relates to investment in the business operarions.

k) I- Since it relates to investment activity.

l) F- Since it is payment made to the financers of the business.

m) O - Since it relates to the business operations.

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