Question

The transactions below took place during the year 2017.

1. Convertible bonds payable with a par value of $305,400 were exchanged for unissued common stock with a par value of $305,400. The market price of both types of securities was par.

2. The net income for the year was $413,900.

3. Depreciation expense for the building was $90,700.

4. Some old office equipment was traded in on the purchase of some dissimilar office equipment, and the following entry was made.

Equiptment	49,200
Accum. Depreciation-Equipment	29,800
Equipment		39,300
Cash		33,600
Gain on Disposal of Plant Assets		6,100

The Gain on Disposal of Plant Assets was included in income before income taxes.

5.Dividends in the amount of $125,100 were declared. They are payable in January of next year.

Show by journal entries the adjustments that would be made on a worksheet for a statement of cash flows. (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.)

No	Account Titles and Explanation	Debit	Credit
1
2
3
4
5

Answer 1

1. " No Entry", since no cash flow is involved in conersion of convertible bonds to Common Equity. Both are at par values.

2. Net income for the year would be a cash inflow. Cash / Bank Dr $ 4,13,900 Cr Profit & A/c $ 4,13,900.

3. Depreciation expense on Building is cash inflow since it is a non cash expenditure. Dr Cash / Bank $ 90,700 Cr Depreciation $ 90,700.

4. (a) There is a cash outflow on purchase of New Equipment. New Equipment Dr $ 49,200 Cash / Bank Cr $ 49,200.

4 (b) Sale of Old Equipment is cash inflow.Cash / Bank Dr $ 33,600 Old Equipment Cr $ 33,600.

4. (c) Reversal of Accumulated Depreciation has already been considered in the Gain on disposal of Plant Assets and Gain and Disposal of Plant Assets have been taken in income before income taxes. Therefore "No Entry" in both these cases.  

5. "No Entry", since dividends were declared but paid only in the next year.