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Effect of Transactions have on Cash

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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.

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Solution Summary

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

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1. $2,000,000 piece of equipment is purchased with the proceeds of a new 12 month note
It will have no impact as there is no cash flow

2. Mortgage bonds are retired with $790,000 cash and the proceeds of an issue of 150,000 shares of common stock. There will be cash outflow on ...

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