Question

E 12-3: Cushenberry Corporation had the following transactions.

For each transaction, (a) prepare the journal entry, and (b) indicate how it would affect the statement of cash flows using the indirect method.

1. Sold land (cost $12,000) for $15,000.

2. Issued common stock at par for $20,000.

3. Recorded depreciation on buildings for $17,000.

4. Paid salaries of $9,000.

5. Issued 1,000 shares of $1 par value common stock for equipment worth $8,000.

6. Sold equipment (cost $10,000, accumulated depreciation $7,000) for $1,200.

Answer 1

1. Sold land (cost $12,000) for $15,000.

Dr Cash 15,000

Cr Land 12,000

Cr Gain on Sale 3,000

Increase investing cash flows by 15,000. You would also subtract the $3,000 gain from net income under operating activities on the statement of cash flows.

2. Issued common stock for $20,000.

Dr Cash 20,000

Cr Common Stock 20,000

Increase financing cash flows by 20,000.

3. Recorded depreciation on buildings for $17,000.

Dr Depreciation Expense 17,000

Cr Accumulated Depreciation 17,000

This would not directly affect cash flows, but it would be added to net income for operating activities on the statement of cash flows.

4. Paid salaries of $9,000.

Dr Salaries Expense 9,000

Cr Cash 9,000

Decrease operating activities cash flow by $9,000.

5. Issued 1,000 shares of $1 par value common stock for equipment worth $8,000.

Dr Equipment 8,000

Cr Additional Paid-In Capital, Common Stock 7,000

Cr Common Stock 1,000

Since this does not involve cash but it does change the company's financial position, it would be reported in the schedule of noncash investing and financing activities.

6. Sold equipment (cost $10,000, accumulated depreciation $7,000) for $1,200.

Dr Cash 1,200

Dr Accumulated Depreciation 7,000

Dr Loss on Disposal 1,800

Cr Equipment 10,000

There would be an increased cash flow of $1,200 under investing activities. The $1,800 loss would also be added to net income under operating activities on the statement of cash flows.