Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition

SOLUTION TO EXERCISE 13-1

1. FI
2. FO
3. FI
4. FO
5. IO
6. II
7. IO.
8. II
9. IO
10. II
11. FO

Approach:

1. Reconstruct journal entries for the transactions. Examine each entry to identify if there is an inflow of cash (debit to Cash) or an outflow of cash (credit to Cash).
2. Write down the definitions for investing activities and financing activities (see below). Analyze each transaction to see if it fits one of these definitions.

   a) Investing activities—include (1) acquiring and disposing of investments in debt and equity instruments, (2) acquiring and disposing of property, plant, and equipment and other productive assets, and (3) making and collecting loans.

   b) Financing activities—include (1) borrowing money from creditors and repaying the amounts borrowed or otherwise settling the obligation, and (2) obtaining resources from owners and providing them with a return on and a return of their investment.

3. Assume purchases and sales of items are for cash, unless otherwise indicated.

TIP: The journal entry to record a transaction that is an investing activity which results in a cash flow will involve: (1) Cash and (2) an asset account other than Cash, such as Investments (short-term or longterm), Land, Building, Equipment, Patent, etc.

TIP: The journal entry to record a transaction that is a financing activity which results in a cash flow will involve: (1) Cash and (2) a liability account or an owners' equity account, such as Bonds Payable, Note Payable, Dividends Payable, Common Stock, Paid-in Capital in Excess ...