Non-cash transactions:

A. No gain or loss recognized (for example common stock issued to retire notes payable):

Notes payable 10,000

Common Stock 10,000

B. If a gain or loss is recorded:

Machinery (truck) 12,000

Accumulated Depreciation (crane) 40,000

Machinery (crane) 50,000

Gain on exchange 2,000

Note: This gain will be reflected in net income and therefore must be backed out of net income in the operating section of the SCF. The gain, however, will not be added back in the investing section.

C. Cash paid in addition to non-cash transaction:

Machinery (truck) 27,000

Accumulated Depreciation (crane) 40,000

Machinery (crane) 50,000

Cash 15,000

Gain on exchange 2,000

Note: Once again we must back out the gain from net income in the operating section of the SCF. The cash paid for the transaction, however, must be recorded as an outflow in the investing section.

IV. Foreign Currency Translation Adjustment:

This adjustment translates the assets and liabilities of foreign subsidiaries to a companys consolidated balance sheet. It shows up in comprehensive income and the total is shown on the balance sheet. The effect of this translation on cash must also be accounted for. This effect is shown as a separate item at the bottom of the SCF and is necessary for items to balance.