E12-2A. Classification of Cash Flows For each of the items below, indicate wheth
ID: 2794570 • Letter: E
Question
E12-2A. Classification of Cash Flows For each of the items below, indicate whether it is (1) a cash flow L01 from an operating activity, (2) a cash flow from an investing activity, (3) a cash flow from a financ- ing activity, (4) a noncash investing and financing activity, or (5) none of the above: a. Paid cash to retire bonds payable at a loss b. Received cash as settlement of a lawsuit c. Acquired a patent in exchange for common stock d. Received advance payments from customers on orders for custom-made goods e. Gave large cash contribution to local university f Invested cash in 60-day commercial paper (a cash equivalent)Explanation / Answer
a.) Paid cash to retire bonds payable at a loss: It is a cash flow from financing activity. Companies issue bonds to raise funds or finance themselves for various investment opportunities.
b.) Recieved cash as settlement of a lawsuit: It is a one time payment recieved. Not the core operations of the company. It is a noncash investing and financing actiivity. More clearly it is a non cash investing.
c.) Acquired a patent in exchange for common stock: It is a cash flow from an investing activity. Patent for the company is a long term investment.
d.) Received advance payments from customers on orders for custom made goods: It is the core operations of company. Day to day operations. It is Cash Flow from operating activity.
e.) Gave large cash contribution to local university: It is a one time expense. it is not related to core operations of the company. It is non cash investing and financing activity.
f.) Invested cash in 60 day commercial paper ( a cash equivalent): It is cash flow from financing activity. Company invest in commercial paper for short term payments to raw material providers. Therefore commercial papers are used for short term financing.
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