SOLUTION TO EXERCISE 13-2
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Approach: Write down the definitions for investing activities, financing activities, and operating activities. (These definitions can be found in Illustration 13-1.) Analyze each transaction to see in which classification the transaction would be included. Watch for any transactions that do not result in a cash flow; they are noncash items.
Explanation:
- Issuance of stock for cash results in a cash inflow from financing activities.
- Issuance of stock in exchange for plant assets does not involve any flow of cash; the issuance of stock is a financing activity and the acquisition of plant assets is an investing activity. The transaction is a noncash financing and investing activity.
- The sale of services is a revenue transaction. The sale of services for cash results in an inflow of cash from operating activities.
- The purchase of an investment for cash results in an outflow of cash from investing activities.
- The collection of accounts receivable constitutes a cash inflow from a customer for a prior revenue transaction. A collection of cash from a customer is an inflow of cash from operating activities.
- The payment of accounts payable constitutes a payment to a supplier for inventory or other goods or services. There will be a related expense transaction either before the cash payment or after the time of cash payment. A payment to a vendor is an outflow of cash from operating activities.
- The payment of cash ...