Question

For each of the following separate transactions:

Sold a building costing $31,500, with $20,600 of accumulated depreciation, for $8,600 cash, resulting in a $2,300 loss.
Acquired machinery worth $10,600 by issuing $10,600 in notes payable.
Issued 1,060 shares of common stock at par for $2 per share.
Note payables with a carrying value of $40,300 were retired for $47,600 cash, resulting in a $7,300 loss.
(a) Prepare the reconstructed journal entry.
1. Record Sale of Building
2. Record Acquisition of machinery
3. Record the issuance of common stock for cash
4. Record payment of cash to retire debit
(b) Identify the effect it has, if any, on the investing section or financing section of the statement of cash flows.

Answer 1

a) Journal Entries:

1. Debit Sale of Building $31,500

Credit Building $31,500

To transfer building to sale of building account.

Debit Accumulated Depreciation $20,600

Credit Sale of Building $20,600

To transfer accumulated depreciation to sale of building account.

Debit Cash $8,600

Credit Sale of Building $8,600

To record the proceeds received from the sale of building.

2. Debit Machinery $10,600

Credit Notes Payable $10,600

To record the acquisition of machinery.

3. Debit Cash $2,120

Credit Common stock $1,060

Credit APIC $1,060

To record the issuance of 1,060 shares of common stock at par for $2 per share.

4. Debit Note payables $40,300

Debit Loss (Interest expense) $7,300

Credit Cash $47,600

To record the retirement of the note payable.

b) Effect of transactions on Investing or Financing sections of the Statement of Cash Flows:

Investing activities:

Sale of Building +$8,600

Financing activities:

Issuance of common stock +$2,120

Notes payable -$47,600

Step-by-step explanation:

a) Data and Analysis:

Sale of Building $31,500 Building $31,500

Accumulated Depreciation $20,600 Sale of Building $20,600

Cash $8,600 Sale of Building $8,600

Machinery $10,600 Notes Payable $10,600

Cash $2,120 Common stock $1,060 APIC $1,060 shares of common stock at par for $2 per share.

Note payables $40,300 Interest Loss $7,300 Cash $47,600