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Effect of 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 Preview

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 ...

Solution Summary

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

$2.19