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6 March, 07:27

Classify each item as an operating, investing, or financing activity. Assume all items involve cash unless there is information to the contrary and the indirect method is used.

(a) Purchase of equipment.

Operating Activity Financing Activity Investing Activity

(b) Proceeds from sale of building.

Financing Activity Operating Activity Investing Activity

(c) Redemption of bonds.

Financing Activity Operating Activity Investing Activity

(d) Depreciation.

Investing ActivityOperating ActivityFinancing Activity

(e) Payment of dividends.

Financing Activity Operating Activity Investing Activity

(f) Issuance of common stock.

Financing Activity Operating Activity Investing Activity

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  1. 6 March, 07:46
    0
    There are three types of activities in the cash flow statement which are described below:

    1. Operating activities: It includes those transactions which affect the working capital after net income. The increase in current assets and a decrease in current liabilities would be deducted whereas the decrease in current assets and an increase in current liabilities would be added.

    These changes in working capital would be adjusted. Moreover, the depreciation expense is added to the net income

    2. Investing activities: It records those activities which include purchase and sale of the long term assets. The purchase is an outflow of cash whereas sale is an inflow of cash

    3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance. The issue of shares is an inflow of cash whereas redemption and dividend is an outflow of cash.

    So, the categorization is shown below:

    (a) Purchase of equipment - Investing Activity

    (b) Proceeds from sale of building - Investing Activity

    (c) Redemption of bonds - Financing Activity

    (d) Depreciation - Operating Activity

    (e) Payment of dividends - Financing Activity

    (f) Issuance of common stock - Financing Activity
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