Question

For each of the following transactions, indicate how (i) net earnings and (ii) cash flows are affected. For each, state whether there will be an increase, a decrease, or no effect, and the amount (if any):

a. Issued shares to investors for $60,000.

b. Purchased inventory from suppliers for $2,500, on account.

c. Purchased office supplies for $500.

d. Sold a unit of inventory for $500, on account. The unit had cost $300 and was already in inventory prior to its sale.

e. Purchased equipment for $10,000 cash.

f. Made a payment of $1,000 on accounts payable.

g. Used $300 of the supplies purchased in transaction (c).

h. Received a payment of $700 from a customer for inventory previously sold on account.

i. Declared (but did not yet pay) a dividend of $2,000.

j. Paid the $2,000 dividend that was declared above.

k. Depreciated equipment by $500.

Answer 1

Cash Flows Increases No effect Decreases No effect Decreases Transaction Net Earnings a. Issued Shares to investors for $60,000 No effect b. Purchased inventory from Suppliers for $2,500, on account No effect c. Purchased office supplies for $500 No effect d. Sold a unit of inventory for $500, on account. The unit had cost $300 and was already in inventory prior to its sale. Increases e. Purchased equipment for $10,000 cash. No effect |f. Made a payment of $1,000 on accounts payable No effect g. Used $300 of the supplies purchased in transaction (c') Decreases h. Received a payment of $700 from a customer for inventory previously sold on account No effect i. Declared but not yet paid a dividend of $2000. No effect j. Paid the $2000 dividend that was declared above. No effect k. Depreciated equipment by $500. Decreases Decreases No effect Increases No effect Decreases No effect