Question

classify the following cash flows as either operating, investing, or financing activities, assuming the indirect method.
cash flow activity

1. paid cash for a building.
2. cash paid to purchase investments.
3. received cash from long - term debt issuance.
4. paid long - term debt with cash.
5. received cash payments from customers.
6. issued common stock for cash.
7. paid cash for wages and salaries.
8. received cash interest on a note.
9. received cash dividends from investments.
10. paid cash for rent.

Explanation:

To classify cash flows, we use the definitions of operating, investing, and financing activities:

• Operating activities: Cash flows related to the primary revenue - generating activities of the business (e.g., sales, payments to employees, rent, interest received as it's part of operating for some entities).
• Investing activities: Cash flows related to the purchase or sale of long - term assets and investments (e.g., buildings, investments).
• Financing activities: Cash flows related to the capital structure of the business (e.g., issuing debt or stock, repaying debt).

Step 1: Analyze "Paid cash for a building"

A building is a long - term asset. Cash outflows for the purchase of long - term assets are investing activities.
So, "Paid cash for a building" is an investing activity.

Step 2: Analyze "Cash paid to purchase investments"

Investments (assuming long - term or non - trading) are long - term assets. Cash outflows for the purchase of such assets are investing activities.
So, "Cash paid to purchase investments" is an investing activity.

Step 3: Analyze "Received cash from long - term debt issuance"

Long - term debt issuance is related to the financing of the business (raising capital through debt). Cash inflows from debt issuance are financing activities.
So, "Received cash from long - term debt issuance" is a financing activity.

Step 4: Analyze "Paid long - term debt with cash"

Repaying long - term debt is related to the financing of the business (repaying the capital raised through debt). Cash outflows for debt repayment are financing activities.
So, "Paid long - term debt with cash" is a financing activity.

Step 5: Analyze "Received cash payments from customers"

Receiving cash from customers is related to the primary revenue - generating activity (sales) of the business. So, it is an operating activity.

Step 6: Analyze "Issued common stock for cash"

Issuing common stock is related to the financing of the business (raising capital through equity). Cash inflows from stock issuance are financing activities.
So, "Issued common stock for cash" is a financing activity.

Step 7: Analyze "Paid cash for wages and salaries"

Paying wages and salaries is related to the day - to - day operations of the business (compensating employees for work done in the revenue - generating process). So, it is an operating activity.

Step 8: Analyze "Received cash interest on a note"

Interest received on a note (if the note is related to the operating activities, e.g., notes receivable from customers) is part of operating activities. So, it is an operating activity.

Step 9: Analyze "Received cash dividends from investments"

Dividends received from investments: If the investments are long - term, dividends received are considered operating activities (under the indirect method, or depending on the nature of the investment, but generally, for cash flow classification, dividends received can be operating).
So, "Received cash dividends from investments" is an operating activity.

Step 10: Analyze "Paid cash for rent"

Paying rent is related to the day - to - day operations of the business (occupying space for business operations). So, it is an operating activity.

Answer:

Cash Flow	Activity
2. Cash paid to purchase investments.	Investing
3. Received cash from long - term debt issuance.	Financing
4. Paid long - term debt with cash.	Financing
5. Received cash payments from customers.	Operating
6. Issued common stock for cash.	Financing
7. Paid cash for wages and salaries.	Operating
8. Received cash interest on a note.	Operating
9. Received cash dividends from investments.	Operating
10. Paid cash for rent.	Operating