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In 2017, Leppard Inc. issued 1,000 shares of \(10 par value common stock for land worth \)40,000.

(a) Prepare Leppard’s journal entry to record the transaction.

(b) Indicate the effect the transaction has on cash.

(c) Indicate how the transaction is reported on the statement of cash flows.

Short Answer

Expert verified

(a) The journal entry to record this transaction is, land is debited, and common stock and paid-in capital in excess of par are credited.

(b) There will be no effect on cash.

(c) Transaction will come under schedule of non-cash investing and financing activities.

Step by step solution

01

:Journal entry to record the transaction

Journal

Date

Particulars

Debit ($)

Credit ($)

Land

40,000

Common Stock

10,000

Paid-In Capital in Excess of Par- Common Stock

30,000

(Purchase of land is recorded)

02

:Effect of the transaction on cash

There will be no effect of the transaction on cash because the company purchased the land in exchange of common stock which means the company paid with common stock instead of cash.

03

:Preparation of statement of cash flow (partial)

Statement of cash flow (Partial)

Noncash investing and financing activities:

Purchase of land through the issuance of common stock

$40,000

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Most popular questions from this chapter

For purposes of the statement of cash flows, under IFRS interest paid is treated as:

  1. an operating activity in all cases.
  2. an investing or operating activity, depending on use of the borrowed funds.
  3. either a financing or investing activity.
  4. either an operating or financing activity, but treated consistently from period to period.

Question: ETHICS (Cash Flow Reporting)

Brockman Guitar Company is in the business of manufacturing top-quality, steelstring folk guitars. In recent years, the company has experienced working capital problems resulting from the procurement of factory equipment, the unanticipated buildup of receivables and inventories, and the payoff of a balloon mortgage on a new manufacturing facility. The founder and president of the company, Barbara Brockman, has attempted to raise cash from various financial institutions, but to no avail because of the company’s poor performance in recent years. In particular, the company’s lead bank, First Financial, is especially concerned about Brockman’s inability to maintain a positive cash position. The commercial loan officer from First Financial told Barbara, “I can’t even consider your request for capital financing unless I see that your company is able to generate positive cash flows from operations.” Thinking about the banker’s comment, Barbara came up with what she believes is a good plan: With a more attractive statement of cash flows, the bank might be willing to provide long-term financing. To “window dress” cash flows, the company can sell its accounts receivables to factors and liquidate its raw materials inventories. These rather costly transactions would generate lots of cash. As the chief accountant for Brockman Guitar, it is your job to tell Barbara what you think of her plan.

Instructions

Answer the following questions.

(a) What are the ethical issues related to Barbara Brockman’s idea?

(b) What would you tell Barbara Brockman?

What are the major sources of cash (inflows) in a statement of cash flows? What are the major uses (outflows) of cash?

Of what use is the statement of cash flows?

In 2017, Elbert Corporation had net cash provided by operating activities of \(531,000, net cash used by investing activities of \)963,000, and net cash provided by financing activities of \(585,000. At January 1, 2017, the cash balance was \)333,000. Compute December 31, 2017, cash

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