Exercise 1

Classify each of the following transactions as an operating activity, an investing activity or a financing activity cash flow, or a non cash transaction - Indicate also its effect on the Income statement (increase or decrease the profit)

1. Provide services for cash
2. Purchase marketable securities for cash
3. Paid cash for rent
4. Received interest on note receivable
5. Paid cash for salaries
6. Received advance payment for services
7. Paid a cash dividend
8. Provide services on account
9. Bought land with cash
10. Collected cash from receivables
11. Issued common stock for cash
12. Repaid principal and interest on a note payable
13. Declared a stock split
14. Purchased inventory with cash
15. Recorded depreciation of fixed asset
16. Paid insurance with cash
17. Issued a note payable in exchange for equipment

Exercise 2

Prepare the statement of Cash flows for 2007, using the indirect method, with the financial statements and additional information as below:

Additional information

1. Purchased land for $ 112,000
2. Purchased new equipment for $ 100,000
3. Sold old equipment that costs $ 132,000 with accumulated depreciation of $ 112,000 for 20,000 cash
4. Issued common stock for $ 50,000