What is the effect that the following transactions have on cash?

PROBLEM 11-2

Explain what effect the following transactions would have on cash and how they would be shown in a cash flow statement.

1. A $2,000,000 piece of equipment is purchased with the proceeds of a new 12- month note.
2. Mortgage bonds are retired with $790,000 cash and the proceeds of an issue of 150,000 shares of common stock.
3. $2,000,000 of inventory is purchased on account.
4. A dividend of $0.25 per share is declared on the 750,000 outstanding shares.
5. A piece of machinery is sold for $1, 5000,000 cash. When originally purchased, it cost Anwat $5,000,000, and currently has $2,500,000 of accumulated depreciation.

Solution Summary

This solution briefly describes the effect that each transaction will have on cash and the cash flow statement.