For each of the following separate transactions: Sold a building costing $32,000, with $20,800 of accumulated depreciation, for $8,800 cash, resulting in a $2,400 loss. Acquired machinery worth $10,800 by issuing $10,800 in notes payable. Issued 1,080 shares of common stock at par for $2 per share. Note payables with a carrying value of $40,400 were retired for $47,800 cash, resulting in a $7,400 loss. (a) Prepare the reconstructed journal entry. (b) Identify the effect it has, if any, on the investing section or financing section of the statement of cash flows.

Sale of building:

journal entry:

cash 8,800 debit

acc dep building 20,800 debit

loss at disposal 2,400 debit

building 32,000 credit

cash generated from investing activities: 8,800

Purchase of Machine

journal entry:

machinery 10,800 debit

note payable 10,800 credit

no cash involve no effect on cash flow statement

issuance of shares:

journal entry:

cash 2,160 debit

common stock 2,160 credit

cash generated from financing activities: 2,160

note payable redemption:

note payable 40,400 debit

loss on redemption 7,400 debit

Cash 7,400 credit

cash used for financing activities: 47,800

Explanation:

Sale of building:

we write-off the assets along with his depreciation and enter the proceed at disposal. We also need to recognzie the gain/loss for the difference:

32,000 - 20,800 = 11,200

procceds (8,800)

result 2,400 loss

cash flow effect: investing activities: 8,800

Purchase of Machine

we record the asset received and the liability issued to get it.

no cash involve no effect on cash flow statement

issuance of shares:

1,080 shares x $2 each = 2,160 this is the amount of the shares and the cash proceeds.

financing for the cash proceeds: 2,160

note payable redemption:

we write-off the liability, we credit the cahs used and recognize the loss.

cash used for financing for 47,800