Question

The following transactions occurred for Dussault Ltd.

1. Annual interest of 6% is paid on $500,000 of bonds payable that were issued last year.

2. A truck was purchased for $50,000 at the beginning of this year. The truck is being depreciated over

   five years at a rate of $10,000 per year.

3. Old equipment is sold for $40,000. The asset originally cost $160,000 and has accumulated depreciation of $125,000.

4. New equipment is purchased for $200,000. A cash payment of $50,000 is made and a long-term note payable for $150,000 is issued for the remainder.

5. A deposit of $2,000 is received in advance from a customer for goods to be delivered at a later date.

6. Income tax expense for the year is $85,000; $70,000 of this amount was paid during the year, and

   the remainder will be paid next year.

Required

For each of the above items:

a. Identify the accounts affected and give the amounts by which they would be increased or decreased.

b. State the amount of any cash flow and whether cash is increased or decreased.

c. Identify how each item would be reported in Dussault’s statement of cash flows.

Answer 1

a. Identify the accounts affected and give the amounts by which they would be increased or decreased.

Particulars	Debit ($)	Credit($)
Interest on Bonds A/c	30000
Cash A/c		30000
Truck A/c	50000
Cash A/c		50000
Depreciation A/c	10000
Truck A/c		10000
Cash A/c	40000
Old Equipment A/c		40000
Old Equipment A/c	160000
Purchases A/c		160000
Depreciation A/c	125000
Asset A/c		125000
Equipment A/c	200000
Cash A/c		50000
Note Payable A/c		150000
Cash A/c	2000
Deposit Received A/c		2000
Income Tax A/c	85000
Cash A/c		70000
Tax paid in Advance		15000

b. State the amount of any cash flow and whether cash is increased or decreased.

Particulars	$	Particulars	$
To Old Equipment	40000	By Interest on bonds A/c	30000
To Deposit Received	20000	By Truck A/c	50000
		By Old Equipment A/c	50000
		By Income Tax A/c	70000
To Bal c/d	140000
	200000		200000

Cash will get decreased by Rs. 70000/-

c. Identify how each item would be reported in Dussault’s statement of cash flows.

Particulars	Amount ($)
Cash flows from Operating Activities
Depreciation	135000
Interest on Bonds	30000
Cash generated from Operations	167000
Income Tax Paid	70000
Net cash from operating Activities	97000
Cash flows from Investing Activities
Deposit Received	2000
Proceeds of disposal of Old equipment	40000
Net cash from investing Activities	42000