Question

State the effect (cash receipt or payment and amount) of each of the following transactions, considered individually, on cash flows:

a. Retired $300,000 of bonds, on which there was $3,000 of unamortized discount, for $312,000.
b. Sold 7,000 shares of $20 par common stock for $50 per share.
c. Sold equipment with a book value of $48,800 for $70,300.
d. Purchased land for $479,000 cash.
e. Purchased a building by paying $93,000 cash and issuing a $90,000 mortgage note payable.
f. Sold a new issue of $300,000 of bonds at 98.
g. Purchased 3,200 shares of $35 par common stock as treasury stock at $69 per share.
h. Paid dividends of $2.10 per share. There were 22,000 shares issued and 4,000 shares of treasury stock.

Answer 1

a. Retiring bonds results in a cash payment of $312,000. b. Selling common stock results in a cash receipt of $350,000. c. Selling equipment results in a cash receipt of $70,300.

Step-by-step explanation:

a. When the company retires the bonds, it will involve a cash payment. In this case, the company retired $300,000 of bonds for $312,000. Therefore, the effect on cash flows is a cash payment of $312,000.

b. Selling common stock for cash will result in a cash receipt. In this case, the company sold 7,000 shares of $20 par common stock for $50 per share. Therefore, the effect on cash flows is a cash receipt of $350,000.

c. Selling equipment will involve a cash receipt. In this case, the company sold equipment with a book value of $48,800 for $70,300. Therefore, the effect on cash flows is a cash receipt of $70,300.

d. Purchasing land for cash will result in a cash payment. In this case, the company purchased land for $479,000 cash. Therefore, the effect on cash flows is a cash payment of $479,000.

e. Purchasing a building by paying cash and issuing a mortgage note payable will involve both a cash payment and a cash receipt. In this case, the company paid $93,000 cash and issued a $90,000 mortgage note payable. Therefore, the effect on cash flows is a cash payment of $93,000 and a cash receipt of $90,000.

f. Selling a new issue of bonds will result in a cash receipt. In this case, the company sold $300,000 of bonds at 98. Therefore, the effect on cash flows is a cash receipt of $294,000.

g. Purchasing treasury stock will involve a cash payment. In this case, the company purchased 3,200 shares of $35 par common stock as treasury stock at $69 per share. Therefore, the effect on cash flows is a cash payment of $220,800.

h. Paying dividends will result in a cash payment. In this case, the company paid dividends of $2.10 per share. There were 22,000 shares issued and 4,000 shares of treasury stock. Therefore, the effect on cash flows is a cash payment of $39,600.