AC302 Unit 2 Cash Flow Classification Exercise Example

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Sixteen cash events at a composite industrial laundry are placed in operating, investing or financing in this AC302 Unit 2 cash flow classification exercise. Purdue Global AC 302, Intermediate Accounting III, moves from the purpose of the cash flow statement to its sections, and BS in Accounting students decide where each receipt and payment belongs before drafting. Kestle Linen Services' routine rows, contract collections, wages, a new washer and dividends, sit cleanly. Three rows are split under the 2016 classification update: a zero-coupon note's accreted interest, a contingent payment for a hotel delivery route, and a finance lease payment. Trading bills follow their purpose, flood insurance proceeds go to investing, and vans bought with a dealer note go to the noncash schedule.

CourseAC302 Intermediate Accounting III
UnitUnit 2
Paper typeCash flow classification exercise
LengthAbout 640 words, 5 pages double-spaced
FormatAPA 7 student paper
SchoolPurdue University Global
ProgramBS in Accounting
UpdatedOctober 2026

Free sample paper for AC302 Unit 2

1

Sixteen Cash Events, Three Sections and a Schedule: A Unit 2 Cash Flow Classification Exercise for an Industrial Laundry

[Student Name]

Purdue University Global

AC302: Intermediate Accounting III

Unit 2 Cash Flow Classification Exercise

[Instructor Name]

[Date]

Kestle Linen Services and every amount are composite; the standards and textbook cited are real.

What this part is doingNaming the splits and the noncash item in the lead shows the exercise goes beyond the routine placements.
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The Three Questions Asked of Each Row

Does the cash relate to the activities that produce net income? Then it is operating. Does it buy or sell long-term assets or investments, or lend money and collect it? Then it is investing. Does it come from or go to owners and lenders as principal? Then it is financing (Financial Accounting Standards Board, 1987). Where one payment answers two questions, the 2016 update tells preparers how to split it (Financial Accounting Standards Board, 2016a).

Classification

1. Cash collected from hospital and hotel linen contracts, $6,840,000: operating, the laundry's main revenue.

2. Wages and benefits paid, $3,120,000: operating.

3. Interest paid on the term loan, $64,000: operating; US GAAP treats interest paid as a cost of earning income.

4. Income taxes paid, $88,000: operating.

5. A continuous batch washer bought for cash, $640,000: investing.

6. Old dryers sold for $22,000: investing; the gain on sale is removed from operating under the indirect method.

7. Corporate bonds bought and held as available for sale, $150,000: investing.

8. Treasury bills bought for the trading portfolio, $40,000: operating, because securities acquired to sell in the near term are classified by their purpose, like inventory.

9. Dividends received on a small holding of listed utility shares, $6,000: operating.

10. Dividends paid to shareholders, $120,000: financing.

11. A zero-coupon note repaid at $1,000,000 after being issued for $822,000: split, $178,000 of accreted interest to operating and $822,000 of principal to financing.

12. Contingent consideration of $310,000 paid two years after Kestle bought a hotel delivery route: split, the $250,000 fair value recognized at the acquisition date to financing and the $60,000 excess to operating.

13. A finance lease payment on folding machines, $48,000: split, $39,000 of principal to financing and $9,000 of interest to operating (Financial Accounting Standards Board, 2016b).

14. Insurance proceeds for a boiler damaged by a flood, $95,000: investing, because the proceeds replace a damaged long-term asset.

15. Treasury shares bought back, $70,000: financing.

16. Six delivery vans acquired by signing a $180,000 note to the dealer: no cash moved; reported in the supplemental schedule of noncash investing and financing activities.

The zero-coupon note and the contingent payment each look like a single financing outflow, but each carries a slice that is really a cost of operating, interest that accrued over time and a payment above what the route was judged to be worth, and the update requires that slice to be pulled out.

What this part is doingThe highlighted sentence explains the reasoning behind the two splits graders scrutinize most.
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Checking the Harder Rows

Row 8 depends on intent. Had Kestle bought the Treasury bills to hold as a cash reserve with maturities of three months or less, they would be cash equivalents and appear in no section at all. Row 9 reflects the US GAAP choice to treat dividends received as operating; international standards would permit investing. Row 12 turns on timing: a contingent payment made soon after an acquisition is investing, but one made two years later is financing up to the original fair value. Row 14 would be operating if the insurance covered lost inventory or lost revenue instead of equipment, since the update classifies settlements by the nature of the loss (Kieso et al., 2019).

Totals by Section

Operating rows net to $3,287,000 of inflows, including the trading purchase and the operating slices of the splits. Investing rows net to $673,000 of outflows. Financing rows net to $1,301,000 of outflows. Those figures are a check on placement, not a statement; Unit 3 builds the operating section properly from net income.

What this part is doingClosing with section totals and a link to the next unit shows the classification feeds the later statement.
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References

Financial Accounting Standards Board. (1987). Statement of cash flows (Statement of Financial Accounting Standards No. 95). https://www.fasb.org

Financial Accounting Standards Board. (2016a). Statement of cash flows (Topic 230): Classification of certain cash receipts and cash payments (Accounting Standards Update No. 2016-15). https://www.fasb.org

Financial Accounting Standards Board. (2016b). Leases (Topic 842) (Accounting Standards Update No. 2016-02). https://www.fasb.org

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.

AC302 Unit 2 instructions, in plain terms

The second unit of AC302 gives a list of transactions and asks for the section each belongs in, with a reason. Start with the three questions that define the sections, so each placement rests on a test rather than memory. Work through every row, writing the amount and a short reason. Watch for rows that split: a zero-coupon note repaid at face, contingent consideration paid long after an acquisition, and lease payments that mix principal and interest. Check items that depend on intent, such as short-term securities. Insurance proceeds follow the nature of the loss. Exchanges that moved no cash go to a separate schedule. Note where US GAAP differs from international standards, since prompts often ask. Totaling each section is a good check. Cite SFAS 95, the 2016 update and the textbook in APA 7.

How this AC302 Unit 2 example is built

The sample states the three questions that sort cash flows, citing the 1987 statement and the 2016 update. Sixteen numbered rows follow, each with an amount, a section and a reason. Collections of $6,840,000 and wages lead the operating rows. A $640,000 washer, dryers sold for $22,000 and available-for-sale bonds are investing. Row 11 splits a zero-coupon repayment into $178,000 of operating interest and $822,000 of financing; row 12 splits a $310,000 contingent payment; row 13 splits a lease payment. The highlighted sentence explains why the first two splits are required. A checking section revisits rows 8, 9, 12 and 14, noting cash equivalents, the IFRS choice for dividends, the timing rule for contingent payments and how insurance on inventory would differ. Section totals close the exercise.

AC302 Unit 2 rubric: what earns full points

The AC302 rubric for this exercise checks each placement and its reason, so an answer without reasons earns only part of the credit. Routine rows are worth less than the three split payments, where Kestle's grade is really decided. Splitting a zero-coupon repayment correctly shows the student knows the 2016 update. The contingent consideration row tests timing judgment. Lease payments must separate principal from interest. Intent-based rows, such as trading securities, earn credit only when the purpose is stated. The noncash exchange must be removed from all three sections. Comparisons with international standards often add a few points. Section totals that tie back to the source data show the work is complete. A numbered grid, reasons on every line and references in APA 7 meet what Purdue Global instructors look for.

Common AC302 Unit 2 mistakes, and how to avoid them

The most frequent mistakes on classification exercises are sending interest paid to financing because the loan sits there, and putting dividends received into investing. Zero-coupon repayments are left whole in financing. Contingent consideration is placed entirely in investing regardless of timing. Lease payments go wholly to financing or wholly to operating. Insurance proceeds are put in operating even when they replace equipment. Noncash exchanges, such as vehicles bought with a note, appear as investing outflows. Students also confuse cash equivalents with trading securities. A grid without reasons leaves no room for partial credit. If your list includes debt prepayment penalties, securitized receivables or proceeds from life insurance on an officer, a writer can place each one and give the rule behind it.

Get an AC302 Unit 2 example written to your instructions

Every transaction the Unit 2 problem lists is the whole input, so include every item exactly as your problem numbers it, the textbook edition if the section names one, and the rubric. Each row comes back placed, reasoned and split where the rules require, within 24-48h, and a first custom sample is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.

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AC302 Unit 2 questions, answered

Why does interest paid go to operating when the loan sits in financing?

Under US GAAP, interest enters net income as an expense, so the cash paid for it is treated as part of earning that income. Only the principal borrowed and repaid is financing. International standards allow a choice, which is why some textbook problems ask for both treatments. The AC302 sample follows US GAAP unless the problem says otherwise and states that assumption in its reasons column.

What if the assigned textbook predates the 2016 clarifications?

Older editions sometimes place debt prepayment costs or zero-coupon repayments differently. If your section's text uses the earlier treatment, the grid follows the text and notes the current rule beside it, because graders mark against the materials the section uses. Most current AC302 problems reflect the updated guidance, and the sample identifies which rows would change under the older approach.

Does a classification exercise need amounts at all?

Many Unit 2 problems supply them, and amounts make the split rows meaningful, since a zero-coupon repayment cannot be divided without figures. Where a prompt lists transactions with no amounts, the grid still shows the section and reason for each and explains in words how a split row would divide. When amounts exist, a closing total proves nothing was placed twice.

Where can I find a free AC302 Unit 2 sample paper?

This page offers a complete AC302 Unit 2 cash flow classification exercise for a composite industrial laundry, sixteen rows with sections and reasons, three split payments, a noncash item and APA 7 references.

How is the zero-coupon note split in the AC302 Unit 2 sample?

The note was issued for $822,000 and repaid at $1,000,000. The $822,000 of principal is financing, and the $178,000 that accrued as interest over its life is operating.