91Ó°ÊÓ

Following are selected statement of financial position accounts of Sander Bros. Corp. at December 31, 2017 and 2016, and the increases or decreases in each account from 2016 to 2017. Also presented is selected income statement information for the year ended December 31, 2017, and additional information.

Selected statement of financial position accounts

	2017	2016	Increase (Decrease)
Assets
Property, plant, and equipment	\(277,000	\)247,000	\(30,000
Accumulated depreciation	(178,000)	(167,000)	(11,000)
Accounts receivable	34,000	24,000	10,000
Equity and liabilities
Share capital—ordinary, \)1 par	\( 22,000	\) 19,000	\( 3,000
Share premium—ordinary	9,000	3,000	6,000
Retained earnings	104,000	91,000	13,000
Bonds payable	49,000	46,000	3,000
Dividends payable	8,000	5,000	3,000
Selected income statement information for the year ended December 31, 2017
Sales revenue	\)155,000
Depreciation	38,000
Gain on sale of equipment	14,500
Net income	31,000

Additional information:

1. During 2017, equipment costing \(45,000 was sold for cash.
2. Accounts receivable relate to sales of merchandise.
3. During 2017, \)25,000 of bonds payable were issued in exchange for property, plant, and equipment.

There was no amortization of bond discount or premium.

Instructions Determine the category (operating, investing, or financing) and the amount that should be reported in the statement of cash flows for the following items.

1. Payments for purchase of property, plant, and equipment.
2. Proceeds from the sale of equipment.
3. Cash dividends paid.
4. Redemption of bonds payable.

Step by step solution

01

Meaning of Amortization

Amortization is paying off a debt through normal, pre-arranged installments that incorporate principal and interest. Principal and interest payments are made in each circumstance where the term "amortization" is pertinent.

02

Step 2:(a) Determining Payments for purchase of property, plant, and equipment.

This can be represented in T-account

Dr. Property, Plant,

and Equipment Cr.

12/31/2016	247,000
Equipment from the exchange of B/P	25,000	45,000	Equipment sold
Payment for purchase of PP & E	50,000
12/31/2017	277,000

Payments is $50,000 ($277,000 – ($247,000+ $25,000 -$45,000))

03

(b) Determining proceeds from the sale of equipment

This can be represented in T-account

Dr Accumulated Depreciation Cr.

			167,000	12/31/2016
			38,0000	Depreciation Expense
	Equipment sold	27,000
			178,000	12/31/2017

Accumulated depreciation on equipment sold is $27,000 ($167,000 + $38,000 - $178,000)

Journal entry to reflect the sale of equipment is as follows:

Date	Particulars	Debit ($)	Credit ($)
	Cash	32,500
	Accumulated depreciation	27,000
	Property, Plant, and Equipment		45,000
	Gain on sale of Equipment		14,500

The $32,500 in equipment sales revenue is regarded as an investment activity. The acquisition and disposition of long-term productive assets are included in investing activities.

04

(c) Determining Cash dividends paid.

Dr. Retained Earnings Cr.

		91,000	12/31/2016
		31,000
Dividend declared	18,000
		104,000	12/31/2017

Dividend declared is $18,000 ($91,000 + $31,000 - $104,000)

Make T-account for Dividends payable account

Dr. Dividenda payable Cr.

		5,000	12/31/16
		18,000	Dividend declared
Cash dividend paid	15,000
		8,000	12/31/17

Cash dividend paid is $15,000 ($5,000 + $18,000 -$8,000)

05

(d) Determining redemption of bonds payable

This can be represented in T-account

Dr. Bonds payable Cr.

		46,000	12/31/2016
		25,000	Issuance of B/P for PP & E
Redemption of B/P	22,000
		49,000	12/31/2017

The issue is that there was no amortization of the bond premium or discount; as a result, the only change that wasn't taken into account was the payment of the outstanding bonds.

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