For each of the following transactions on the statement of cash flows, indicate whether it would appear in the Operating Activities section (O), in the Investing Activities section (I), or in the Financing Activities section (F). Assume the use of the direct method in the Operating Activities section.

____ 1. Repayment of long-term debt

____2. Purchase of equipment

____3. Collection of customer’s account

____4. Issuance of common stock

____5. Purchase of another company

____6. Payment of dividends

____7. Payment of income taxes

____8. Sale of equipment

II. For each of the following items, indicate whether it would appear on a statement of cash flows prepared using the direct method (D) or the indirect method (I).

____1. Net income

____2. Increase in accounts receivable

____3. Collections on accounts receivable

____4. Payments on accounts payable

____5. Decrease in accounts payable

____6. Depreciation expense

____7. Gain on early retirement of bonds

____8. Cash sales

III. Fill in the blank for each of the following situations.

Balance Sheet Beginning Ending Income Statement Cash Inflow

(Outflow)

1. Accounts receivable $2,000 $5,000 Sales on account, $15,000 $_________

2. Prepaid insurance $4,000 $3,000 Insurance expense, $7,000 $_________

3. Income taxes payable $6,000 $9,000 Income tax expenses, $20,000 $________

IV. For each of the following items, indicate whether it would be added to (A) or deducted from (D) net income to arrive at net cash flow provided by operating activities under the indirect method.

_____1. Increase in accounts receivable

_____2. Decrease in prepaid rent

_____3. Decrease in inventory

_____4. Decrease in accounts payable

_____5. Increase in income taxes payable

_____6. Depreciation expense

_____7. Gain on sale of equipment

_____8. Loss on early retirement of bonds