MacAskill Mills Limited, which uses ASPE, engaged in the following transactions in 2014.
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 Equipment 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 equipment that cost $10,000 was sold during the year for $1,000. In addition, equipment that cost $3,000 and had a carrying amount of $700 was discarded, and new equipment was acquired and paid for.
3. A five-year capital lease for specialized equipment 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 equipment 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.
Instructions
For each listed item:
(a) Prepare the underlying journal entries that were made by MacAskill Mills during 2014 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.