Question

The following transactions occurred for Mouawad Inc.

1.	Inventory costing $295,000 was purchased on account.
2.	A new vehicle costing $31,000 was purchased. Mouawad paid $6,900 as a down payment, and the remaining $24,100 was financed through a bank loan.
3.	Surplus land was sold for $76,000, which was $16,500 more than its original cost.
4.	During the year, the company made a payment of $18,000 on its mortgage payable; $2,250 of this amount was for the interest on the debt.
5.	Wages of $45,000 were charged to expense as they were incurred. No wages were owing to the employees at the end of the year.
6.	The company declared and paid dividends of $34,500.

Identify the accounts affected and give the amounts by which they would be increased or decreased. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

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State the amount of any cash flow and whether cash is increased or decreased.

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Identify how each item would be reported in Mouawad’s statement of cash flows.

Answer 1

ANSWER:-

1)

Account Titles	Debit ($)	Credit ($)
Inventory A/C	295,000
Accounts payable		295,000
(Being goods purchased on account )
Vehicle A/C	31,000
Cash A/C		6,900
Bank Loan A/C		24,100
(Being new vehicle purchased)
Cash A/C	76,000
Land A/C		59,500
Gain on sale of land A/C		16,500
(Being land sold)
Mortgage payable A/C	15,750
Interest expense A/C	2,250
Cash A/C		18,000
(Being cash paid for mortagage with interest)
Wages expense A/C	45,000
Cash A/C		45,000
(Being wages expense paid )
Cash Dividends A/C	34,500
Cash A/C		34,500
(Being dividend declared and paid )

Note 1) If the company maintains perpetual inventory system then in the first journal entry instead of purchase, Inventory account would have been debited.

2)

	Increase/decrease	Amount
1	No effect	Nil
2	Decrease	($6,900)
3	Increase	$76,000
4	Decrease	($18000)
5	Decrease	($45,000)
6	Decrease	($34,500)

3)

Transaction	Activity
1	None
2	Investing
3	Investing
4	Financing
5	Operating
6	Financing