Question

Prestige Manufacturing Corporation reports the following items in its statement of cash flows presented using the direct method. Indicate whether each item is disclosed in the operating activities (O), investing activities (I), or financing activities (F) section of the statement under GAAP or use (NA) if the item does not appear on the statement.

1. Payment of equipment purchase

2. Repayments of bank loans

3. Dividends paid

4. Proceeds from issuance stock

5. Interest paid

6. Receipts from customers

Answer 1

1. Payment of equipment purchase (I)

2. Repayments of bank loans (F)

3. Dividends paid (F)

4. Proceeds from issuance stock (F)

5. Interest paid (O)

6. Receipts from customers (O)

Step-by-step explanation:

1. The payment of equipment purchase is an investing activity as the equipment would be used to generate revenue for the company.
2. Repayment of bank loans is a financing activity since the loans would have been used to financed the operations of the business.
3. Dividends paid is also a financing activity since it is paid to the shareholders of the company.
4. Proceeds from issuance of stock is also a financing activity since the common stock forms part of the equity of the company.
5. Interest paid is an operating activity.
6. Receipt from customers is also an operating activity since it connotes payment for goods sold or services rendered.