Item 1: For Entity A, classify each transaction as either an operating activity OA, an investing activity IA, or a financing activity FA, or a noncash investing and financing activity NC.

Selected transactions for the Entity A are listed below.

_____ 1. Cash from customers from the sale of goods or services.

_____ 2. Purchase of merchandise inventory for resale.

_____ 3. Cash received from owners when shares are sold to them.

_____ 4. Purchase of equipment used in the business.

_____ 5. Cash paid to owners as dividends on common stock.

_____ 6. Acquisition of land by issuing a long-term note payable to the seller.

_____ 7. Sale of investment securities.

_____ 8. Exchange of a patent for a building.

_____ 9. Payoff of bonds payable at maturity.

_____ 10. Cash interest and dividends from investments. .

Item 2: Entity B reported net income of $10,000 for the current year. Depreciation recorded on buildings and equipment amounted to $65,000 for the year. Balances of needed current asset and current liability accounts at the beginning and end of the year are as follows. Be sure to compute the change by subtracting the beginning of year balance from the end of year balance.

End of Year Beginning of Year Change

Accounts receivable 85,000 55,000 30,000 inc

Inventory 15,000 19,000 _____

Prepaid insurance 6,000 0 _____

Accounts payable 12,000 14,000 _____

Taxes payable 14,500 8,000 _____

Also, a gain on the sale of retired painting equipment of $2,500 was reported.

Instructions: Compute the changes in the accounts for each year and then prepare the cash flows from the operating activities section of the statement of cash flows using the indirect method.

Net income 10,000

Adjustments to reconcile net income to cash flow from

operating activities:

Depreciation