American General Company experienced the following accounting events during 2014:

1. Paid $4,000 cash for salary expense.

2. Borrowed $8,000 cash from State Bank.

3. Received $30,000 cash from the issue of common stock.

4. Purchased land for $8,000 cash.

5. Performed services for $14,000 cash.

6. Paid $4,200 cash for utilities expense.

7. Sold land for $7,000 cash.

8. Paid a cash dividend of $1,000 to the stockholders.

9. Hired an accountant to keep the books.

10. Paid $3,000 cash on the loan from State Bank.

a. Indicate how each of the events would be classified on the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not applicable (NA).

Question

Business

Shamar

20 February, 08:58

American General Company experienced the following accounting events during 2014:

1. Paid $4,000 cash for salary expense.

2. Borrowed $8,000 cash from State Bank.

3. Received $30,000 cash from the issue of common stock.

4. Purchased land for $8,000 cash.

5. Performed services for $14,000 cash.

6. Paid $4,200 cash for utilities expense.

7. Sold land for $7,000 cash.

8. Paid a cash dividend of $1,000 to the stockholders.

9. Hired an accountant to keep the books.

10. Paid $3,000 cash on the loan from State Bank.

a. Indicate how each of the events would be classified on the statement of cash flows as operating activities (OA), investing activities (IA), financing activities (FA), or not applicable (NA).

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Answers (1)

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Charlie Mccormick · Answer 1

1. Operating Activities (OA)

2. Financing Activities (FA)

3. Financing Activities (FA)

4. Investing Activities (IA)

5. Operating Activities (OA)

6. Operating Activities (OA)

7. Investing Activities (IA)

8. Financing Activities (FA)

9. Not applicable (NA)

10. Financing Activities (FA)

Explanation:

Statement of cash flows is one of the three major financial statements. The statement analyses the cash generated and cash expended by an entity in a given period. The statement collates the analysis under three categories

1. Operating Activities

2. Investing Activities

3. Financing Activities

Operating activities comprise of cash generated and expended by the entity on its normal business operation during the period. Examples of this are cash received from customers, cash paid to suppliers, rent paid to landlord, cash expenses paid etc.

Investing activities consist of cash activities involving acquisition and disposal of assets and investment. Examples of such are cash receipt from sales of equipment, cash spent on purchase of investment securities.

Financing activities are cash activities involving the entity and provider of capital, equity owner and debt holder. Example of such activities are cash generated from issuance of bond, cash dividend paid to equity owner.