Exercise 11-4B Determine proper classification (LO11-1) Wi-Fi, Inc., has the fol
ID: 2582018 • Letter: E
Question
Exercise 11-4B Determine proper classification (LO11-1) Wi-Fi, Inc., has the following selected transactions during the year Required Select the section of the statement of cash flows in which each of these items would bé reported: operating activities (indirect method), investing activities,financing activities, or a separate noncash activities note. Activities 1. Exchanges land for equipment. Both are valued at $120,000. 2. Declares and pays a cash dividend of $50,000 3. Borrows $60,000 from the bank. 4. Pays a $15,000 account payable 5. Collects a $30,000 account receivable. 6. Pays $20,000 to suppliers for inventory 7. Sells equipment for $25,000 8. Purchases a patent for $40,000 References eBook & Resources Worksheet Difficulty: 2 MediumExplanation / Answer
1.
Non cash activity
Both land and equipment are fixed assets; but these are exchanged only; therefore, there is no cash transaction.
2.
Financing activities
Dividends are paid to shareholders. It reduces the retained earnings; and retained earnings are recorded in the stockholders’ equity part, which is capital financing.
3.
Financing activities
Borrowing creates repayment liability, since this is financed by the bank.
4.
Operating activities
Accounts payable is a current liability; the transaction relating to it is an operating activity.
5.
Operating activities
Accounts receivable is a current asset; the transaction relating to it is an operating activity.
6.
Operating activities
Supplier’s account is a current liability; the transaction relating to it is an operating activity.
7.
Investing activities
Equipment is an asset; therefore, should be considered as an investing activity. Selling of it increases the cash flow.
8.
Investing activities
Patent is an asset; therefore, should be considered as an investing activity. Purchasing of it decreases the cash flow.
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