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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.
1. 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.

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Answer and Explanation:

The classification are as follows

(a) Payment of interest on notes payable = Operating activities as cash outflow

(b) Exchange of land for patent = Non cash investing activity as it does not involve cash transactions

(c) Sale of building at book value = Investing activities as cash inflow which is represented in a positive sign

(d) Payment of dividends. = Financing activities as cash outflow which is represented in a negative sign

(e) Depreciation = It is added to net income and shown in operating activities

(f) Receipt of dividends on investment in stock = Operating activities as cash inflow

(g) Receipt of interest on notes receivable =  Operating activities as cash inflow

(h) Issuance of common stock = Financing activities as cash outflow

(i) Amortization of patent = Operating activities as cash inflow and added to the net income

(j) Issuance of bonds for land = Non cash investing activity as it does not involve cash transactions

Answer:

The classification are as follows

(a) Payment of interest on notes payable = Operating activities as cash outflow

(b) Exchange of land for patent = Non cash investing activity as it does not involve cash transactions

(c) Sale of building at book value = Investing activities as cash inflow which is represented in a positive sign

(d) Payment of dividends. = Financing activities as cash outflow which is represented in a negative sign

(e) Depreciation = It is added to net income and shown in operating activities

(f) Receipt of dividends on investment in stock = Operating activities as cash inflow

(g) Receipt of interest on notes receivable =  Operating activities as cash inflow

(h) Issuance of common stock = Financing activities as cash outflow

(i) Amortization of patent = Operating activities as cash inflow and added to the net income

(j) Issuance of bonds for land = Non cash investing activity as it does not involve cash transactions

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Explanation:

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