Question

Chapter 10&14) Help Save The following information was drawn from the year-end balance sheets of Campbell Trading Company: Account Title Investment securities Equipment Buildings Land Year 2018 Year 1 $ 34,000 $ 28,800 228,000 206,500 846,500 953,500 94,500 64,500 Additional information regarding transactions occurring during Year 2: 1. Investment securities that had cost $6,130 were sold. The Year 2 income statement contained a loss on the sale of investment securities of $660. 2. Equipment with a cost of $47,500 was purchased. 3. The income statement showed a gain on the sale of equipment of $6,000. On the date of sale, accumulated depreciation on the equipment sold amounted to $6,600. 4. A building that had originally cost $166,500 was demolished. 5. Land that had cost $25,700 was sold for $20,500. Required a. Determine the amount of cash flow for the purchase of investment securities during Year 2. b. Determine the amount of cash flow from the sale of investment securities during Year 2. c. Determine the cost of the equipment that was sold during Year 2. d. Determine the amount of cash flow from the sale of equipment during Year 2. e. Determine the amount of cash flow for the purchase of buildings during Year 2. f. Determine the amount of cash flow for the purchase of land during Year 2. g. Prepare the investing activities section of the Year 2 statement of cash flows. Complete this question by entering your answers in the tabs below. Reg A to F Req G

Answer 1

Answer: a. Determination of amount of cash flow for purchase of Investment securities during Year 2 = Ending i. Total value of Investment securities for Year 2 Before sale balance + Cost of sold Investment securities 34000 + $ 6,130 40,130 ii. Opening balance of Investment Securities for Year 2 ( Year 1 balance) - $ 28,800 > Amount of Cash flow for Purchase of Investment securities during Year 2 = i-ii = $ 40,130 - $28,800 = $ 11,330. (OR) Alternatively, Amount of purchases of Investment securities during the year = Ending balance + cost of sales - Beginning balance 34000+$ 6,130-$ 28,800 11,330. b. Determination of Cash flow from sale of Investment securities during Year 2 Sales = Cost + profit/Loss Given Cost of Investment securities sold = $ 6,130 Loss in respect of investment securities reported in Income statement during Year 2 = $ 660 > Amount of cash flow from sale of Investment securities during Year 2 = Cost of investments sold( +/-) Profit/Loss > = $ 6,130 - $ 660 > = $ 5,470. c. Determination of cost of Equipment that was sold during Year 2 Given Beginning balance of Equipment (i.e Year 1 balance) = $ 206,500 Cost of Equipment purchased during Year 2 = $ 47,500 Ending balance of Equipment (i.e year 2 balance ) = 228,000

Cost of Equipment Sold = Beginning balance of Equipment + Purchases during the year - Ending balance of the Equipment = $ 206,500 + $ 47,500 - $ 228,000 = $ 26,000. d. Determination of Amount of Cash flow from the sale of equipment during Year 2 Given Gain on sale of Equipment = $ 6000 Cost of Equipment sold as determined in above point C = $ 26,000 Accumulated Depreciation on the Equipment sold = $ 6,600. Net Carrying amount of Equipment sold = Cost of Equipment - Accumulated Depreciation = $ 26,000 - $ 6,600 = $ 19,400 Gain\Loss on sale of Equipment = Sales - Net carrying amount of Equipment sold > By the above formula we can determine sales = Gain on sale of Equipment + Net Carrying amount = $ 6000 + $ 19,400 Sales = $ 25,400. Therefore Amount of Cash flow from the sale of Equipment = $ 25,400.