MacAskill Mills Limited which uses ASPE engaged in the following
MacAskill Mills Limited, which uses ASPE, engaged in the following transactions in 2011.
1. The Land account increased by $58,000 over the year: Land that originally cost $60,000 was exchanged along with a cash payment of $3,000 for another parcel of land valued at $91,000. Additional land was acquired later in the year in a cash purchase.
2. The Furniture and Fixtures account had a balance of $67,500 at the beginning of the year and $62,000 at the end. The related accumulated depreciation account decreased over the same period from a balance of $24,000 to $15,200. Fully depreciated office furniture that cost $10,000 was sold to employees during the year for $1,000. In addition, fixtures that cost $3,000 and had a carrying amount of $700 were written off, and new fixtures were acquired and paid for.
3. A five-year capital lease for specialized machinery was entered into halfway through the year; under the terms of the lease the company agreed to make five annual payments (in advance) of $25,000, after which the machinery will revert to the lessor. The present value of these lease payments at the 10% rate that is implicit in the lease was $104,247. The first payment was made as agreed.
For each listed item:
(a) Prepare the underlying journal entries that were made by MacAskill Mills during 2011 to record all information related to the changes in each capital asset account and associated accounts over the year.
(b) Identify the amount(s) of the cash flows that result from the transactions and events recorded, and determine the classification of each one.
(c) Prepare the corresponding amounts to those prepared in part (b) for the operating activities section of the statement of cash flows prepared using the indirect method.
(d) Comment on the results obtained in (b) and (c) above.
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