Effect of transaction on statement of cash flows. (Requires coverage of Appendix 8.1.)

Refer to the simplified statement of cash flows in Exhibit 4.12. Numbers appear on 1 1 of the lines in the statement. Ignore the unnumbered lines in responding to the questions that follow.

Assume that the accounting cycle is complete for the period and that the firm has prepared all of the financial statements. It then discovers that it has overlooked a transaction. It records that transaction in the accounts and corrects all of the financial statements. For each of the following transactions, indicate which of the numbered lines of the statement of cash flows change and the amount and direction of the change. Ignore income tax effects.

a. A firm sells for $3,000 cash a machine that cost $1 ().()()() and that has $6,000 of accumulated depreciation.

b. A firm sells for $5,000 cash a machine that cost $10,000 and that has $6,000 of accumulated depreciation.

c. A firm trades in an old machine on a new machine. The old machine cost $10,000 and has

$6,000 of accumulated depreciation. The new machine has a cash price of $9,000. The firm receives a trade-in allowance for the old machine of $5.()(X) and pays $4,000.

Following GAAP the firm records no gain or loss on trade-in but records the new machine at S8.000.

d. A fire destroys a warehouse. The loss is uninsured. The warehouse cost $90,000 and at the time of the fire had accumulated depreciation of $40,000.

e. Refer to the facts of part

d. The fire also destroyed inventory costing $60.(XX). The loss is uninsured. Record the effects of only these new facts.

PROBLEMS AND CASES