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For each of the following separate transactions: Sold a building costing $39,000, with $23,600 of accumulated depreciation, for $11,600 cash, resulting in a $3,800 loss. Acquired machinery worth $13,600 by issuing $13,600 in notes payable. Issued 1,360 shares of common stock at par for $2 per share. Note payables with a carrying value of $41,800 were retired for $50,600 cash, resulting in a $8,800 loss. (a) Prepare the reconstructed journal entry. (b) Identify the effect it has, if any, on the investing section or financing section of the statement of cash flows.

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Answer:

Date       General Journal                        Debit            Credit

               Cash                                         $11,600

               Accumulated dep - Building   $23,600  

               Loss on sale of assets             $3,800

                        Building                                               $39,000

               (To record sale of building)

 

               Machinery                                 $13,600  

                       Note payable                                       $13,600

               (To record acquisition of machinery)

               Cash                                           $2,720  

                        Common stock                                    $2,720

               (To record issuance of common stock)  

                Note payable                           $41,800  

                Loss on retiring of debt           $8,800  

                             Cash                                                $50,600

                (To record payment of cash to retire debt)  

2. Cash flow from investing activities

Cash received from sale of building                            $11,600

Net cash provided by investing activities                $11,600

Cash flow financing activities

Cash received from issuance of common stock        $2,720

Cash paid to retire note                                               $(50,600)

Net cash used by financing activities                       $(47,880)

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