Question

The following information was drawn from the year-end balance sheets of Perez Trading Company: Account Title Investment securities Equipment Buildings Land Year 2 $ 34,900 224,000 855, 000 88,000 Year 1 $ 26,800 215,500 958,000 61,000 Additional information regarding transactions occurring during Year 2: 1. Investment securities that had cost $6,310 were sold. The Year 2 income statement contained a loss on the sale of investment securities of $660. 2. Equipment with a cost of $54,000 was purchased. 3. The income statement showed a gain on the sale of equipment of $5,000. On the date of sale, accumulated depreciation on the equipment sold amounted to $9,300. 4. A building that had originally cost $176,500 was demolished. 5. Land that had cost $25,100 was sold for $20,700. Required a. Determine the amount of cash flow for the purchase of investment securities during Year 2. b. Determine the amount of cash flow from the sale of investment securities during Year 2. c. Determine the cost of the equipment that was sold during Year 2. d. Determine the amount of cash flow from the sale of equipment during Year 2. e. Determine the amount of cash flow for the purchase of buildings during Year 2. f. Determine the amount of cash flow for the purchase of land during Year 2. g. Prepare the investing activities section of the Year 2 statement of cash flows.

Answer 1

Particulars Balance b/d Investment Securities Amount Particulars 26,800.00 Bank ($6310 - $660) Statement of P&L (loss on sale of securities) 14,410.00 Amount 5,650.00 660.00 Bank (Purchases) (balancing fig.) Balance c/d 34,900.00 41,210.00 41,210.00 Particulars Balance b/d Equipment Amount Particulars 2,15,500.00 Accumulated Dep Bank (Sale of Equipment 54,000.00 (balancing fig.) 5,000.00 Amount 9,300.00 41,200.00 Bank (Purchases) Statement of P&L (profit on sale of equipment Balance c/d 2,24,000.00 2,74,500.00 2,74,500.00 Amount Particulars Balance b/d Buildings Amount Particulars 9,58,000.00 Building Demolition 73,500.00 1,76,500.00 Bank (Purchases) (balancing fig.) Balance c/d 8,55,000.00 10,31,500.00 10,31,500.00 Amount Particulars Balance b/d Land Amount Particulars 61,000.00 Bank (Sale of Land) 52,100.00 Statement of P&L (Loss on sale of Land) 20,700.00 4,400.00 Bank (Purchases) (balancing fig.) Balance c/d 88,000.00 1,13,100.00 1,13,100.00

14,410.00 Solution Cash flow for the purchase of Investment Securities Cash flow from the sales of Investment b. securities c.Cost of the equipment sold (9300+41200) d. Cash flow from the sale of Equipment e. Cash flow for the purchase of Buildings f. Cash flow for the Purchase of Land 5,650.00 50,500.00 41,200.00 73,500.00 52,100.00 PEREZ TRADING COMPANY Statement of Cash Flows (Investing Activities) for the year ended December 31, Year 2 Cash Flow from Investing Activities: I Proceeds from Sale of Investment securities 5,650.00 Proceeds from sale of equipment 41,200.00 Proceeds from Sale of Land 20,700.00 Paid to purchase Investment securities -14,410.00 Paid to Purchase equipment -54,000.00 Paid to purchase buildings -73,500.00 Paid to purchase Land -52,100.00 Net Cash flow from Investing Activities -1,26,460.00 |

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