For each of the following transactions, indicate whether it will result in an increase, decrease, or...

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For each of the following transactions, indicate whether it will result in an increase, decrease, or have no effect on cash f

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Answer 1

Answer #1

(a)	Decrease	Repayment of mortgage payable	Cash paid to repay mortgage payable
(b)	Decrease	Payment of interest on mortgage	Interest is paid in cash
(c)	No Effect	Purchase of land in exchange for common shares	No cash involved; Issue of shares for purchase of asset; Land is debited and common shares is credited
(d)	Increase	Issue of preferred shares for cash	Cash received on issue of the preferred shares
(e)	Decrease	Payment for the purchase of a held for trading investment that is not cash equivalent	A held for trading investment is purchased and CASH IS PAID as consideration. (This held for trading investment is not cash equivalent)
(f)	Increase	Collection of accounts receivable	Cash received from debtors
(g)	No Effect	Declaration of cash dividend	No cash involved; dividend payable is credited and shown as a current liability; Retained earnings is debited
(h)	Decrease	Payment of cash dividend	Cash paid; Dividend payable is debited and cash is credited
(i)	Decrease	Cash purchase of inventory	Cash paid to suppliers for purchase of inventory
(j)	No Effect	Recording of depreciation expense	No cash involved; depreciation is a non-cash item; (however, note that depreciation has an indirect effect on cash flow by way of reduced tax payments on account of tax shield on depreciation)
(k)	Decrease	Purchase and cancellation of common shares	Cash is returned to shareholders by way of share buyback - see journal entry given below

Journal entry for purchase and cancellation of common shares:

	Debit	Credit
Treasury stock	$xxx
Cash		$xxx
(shares repurchased)

Common shares	$xxx
Treasury stock		$xxx
(shares canceled)

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Answer 2

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