Answer to Question #169072 in Accounting for KEVIN

Question

Explain the effects of the following transactions on cash and how they would be shown in the statement of cash flow

1)the purchase of equipment for $2million with cash proceeds from the issue of a 12 month note payable at $4million

2)Bonds are retired using $million from proceeds of an issue of $10million ordinary shares of $1 per value issued at the premium of $0.5

3) $5million of merchandise inventory is acquired on account

4)$ 2.5 dividend per share is proposed by the directors on 750 000 outstanding shares

5) the disposal for a piece of machinery for $1.5millon each. The original price was $5million and the accumulated depreciation as at the date of disposal was $2.5million

Answer 1

Solution:

1.).  The proceeds from the issue of a 12 month note payable at $4 million will increase cash and it will be reported as a cash inflow in financing activities in the cash flow statement.

The purchase of equipment for $2 million will decrease cash and it will be reported as a cash outflow in investing activities section.

 

2.). The retirement of bonds will decrease cash and will be reported a cash outflow in financing activities section. The issue of $10 million ordinary shares will increase cash and will be reported as cash inflow in financing activities section.

 

3.). The acquisition of merchandise inventory worth $5 million will decrease cash and will be reported as a cash outflow under the operating activities section.

 

4.). The proposed dividend will decrease cash and will be reported as a cash outflow under financing activities section.

 

5.). The disposal of a piece of machinery for $1.5 million will increase cash and will be reported as a cash inflow in investing activities section.