Reporting Lard Acquisition for Cash and Mortgage Note on Statement of Cash Flows On the basis of...

Question:

On the basis of the details of the following fixed asset account indicate the items to be reported on the statement of cash flows:

ACCOUNT - Land Account No.
Balance
Date Item Debit Credit Debit Credit
2014
Jan. 1 Balance 206,600
Feb. 10 Purchased for cash 332,600 539,200
Nov. 20 Purchased with long-term mortgage note 436,800 976,000

Item Section of Statement of Cash Flows Added or Deducted Amount
Purchase of land for cash
Purchase of land by issuing long-term mortgage note

Statement of Cash Flow:

The statement of cash flow consolidates the operations of the income statement and the two most recent balance sheets to reconcile changes to cash balances over two periods. The statement includes groupings for operating, investing, and financing activities.

Answer and Explanation:


Changes to non-current assets of a company are reported through the investing activities sections. Increases in assets resulting from the purchase of an asset are uses of cash. For instance, when an asset is purchased through the origination of a note payable results in a net-zero effect to cash. The purchase is reported as a note to the statement of cash flow.


Item Section of Statement of Cash Flows Added or Deducted Amount
Purchase of land for cash Investing Activities Deducted $332,600
Purchase of land by issuing long-term mortgage note Purchase is investing section; Note is the financing section. Net zero effect to cash flow statement ($436,800) $436,800

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Using the Statement of Cash Flows for Decision Making

from Accounting 101: Financial Accounting

Chapter 12 / Lesson 5
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