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 $1,500,000 cash. When originally purchased, it cost

Anwat $5,000,000, and currently has $2,500,000 of accumulated depreciation.