Question

For each of the following separate transactions: Sold a building costing $38,500, with $23,400 of accumulated depreciation, for $11,400 cash, resulting in a $3,700 loss. Acquired machinery worth $13,400 by issuing $13,400 in notes payable. Issued 1,340 shares of common stock at par for $2 per share. Note payables with a carrying value of $41,700 were retired for $50,400 cash, resulting in a $8,700 loss. (a) Prepare the reconstructed journal entry. (b) Identify the effect it has, if any, on the investing section or financing section of the statement of cash flows.

Answer 1

Answer:

Both requirements are solved below

Explanation:

REQUIREMENT A:

Sale of a building                        Debit      Credit

Cash                                           $11,400

Acc Depreciation                       $23,400

Loss on disposal                        $3700

Building                                                        $38,500

Acquisition of Machinery                   Debit      Credit

Machinery                                         $13,400

Notes                                                                  $13,400

Issuance of share                         Debit      Credit

Cash(1340x2)                            $2,680

Share Capital                                             $2,680

Retired Debt                        Debit         Credit

Note payable                      $41,700

Loss on retirement            $8,700

Cash                                                      $50,400

REQUIREMENT B:

Cash flow from investing activities

Gain on disposal of building                    $11,400

Net cash flow from investing activities    $11,400

Cash flow from financing activities

Cash received from issuing shares             $2,680

Cash paid for retirement of debt                 ($50,400)

Net cash flow from investing activities        ($47,720)