Question

An analysis of comparative balance sheets, the current year’s income statement, and the general ledger accounts of Wellman Corp. uncovered the following items. Assume all items involve cash unless there is information to the contrary.

Indicate how each item should be classified in the statement of cash flows using these four major classifications: operating activity (indirect method), investing activity, financing activity, and significant noncash investing and financing activity.
(a) Payment of interest on notes payable.
(b) Exchange of land for patent.
(c) Sale of building at book value.
(d) Payment of dividends.
(e) Depreciation.
(f) Receipt of dividends on investment in stock.
(g) Receipt of interest on notes receivable.
(h) Issuance of common stock.
(i) Amortization of patent.
(j) Issuance of bonds for land.
(k) Purchase of land.
(l) Conversion of bonds into common stock.
(m) The loss on the sale of land.
(n) Retirement of bonds.
1. Investing Activity
2. Operating Activity
3. Financing Activity
4. Noncash Investing and Financing Activity

Answer 1

(a) Payment of interest on notes payable.

Classification: Operating activity

(b) Exchange of land for patent.

Classification: Non-cash Investing and Financing activity

(c) Sale of building at book value.

Classification: Investing activity

(d) Payment of dividends.

Classification: Financing activity

(e) Depreciation.

Classification: Operating activity

(f) Receipt of dividends on investment in stock.

Classification: Operating activity

(g) Receipt of interest on notes receivable.

Classification: Operating activity

(h) Issuance of common stock.

Classification: Financing activity

(i) Amortization of patent.

Classification: Operating activity

(j) Issuance of bonds for land.

Classification: Non-cash Investing and Financing activity

(k) Purchase of land.

Classification: Investing activity

(l) Conversion of bonds into common stock.

Classification: Non-cash Investing and Financing activity

(m) The loss on the sale of land.

Classification: Operating activity

(n) Retirement of bonds.

Classification: Financing activity