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Question 1

Lee Corporation is preparing its statement of cash flows by the indirect method.

Lee Corporation has the following items for you to consider in preparing the statement:

Identify each item as a(n):

  • Operating activity—add to net income (O+) or subtraction from net inc. (O–)
  • Investing activity—cash inflow (I+) or cash outflow (I–)
  • Financing activity—cash inflow (F+) or cash outflow (F–)
  • Activity that is not used to prepare the indirect statement of cash flows (N)

Cash Flow ItemsClassification
Gain on sale of building
Purchase of equipment
Decrease in accrued liabilities
Depreciation expense
Payment of dividends
Increase in accounts payable
Loss on sale of land
Issuance of common stock
Increases in merchandise inventory
Decrease in accounts payable