A company bought $250,000 of equipment with an expected life of ten years and no residual value.After six years the company sold the equipment for $94,000.If the company uses straight-line depreciation and the indirect method is used to determine cash flows from operating activities,which of the following reflects how the sale of the equipment would be reported in the statement of cash flows?
A)$94,000 is recorded as a cash inflow from investing activities and no other sections of the statement are affected.
B)$94,000 is recorded as a cash inflow from investing activities and $6,000 is added to convert net income to net cash flow provided by operating activities.
C)$94,000 is recorded as a cash inflow from investing activities and $6,000 is subtracted to convert net income to net cash flow provided by operating activities.
D)$94,000 is recorded as a cash inflow from operating activities.

Question

Quizplus · Accepted Answer

The depreciation taken is $250,000/10 × 6 = $150,000;the book value at the date of sale is $100,000 ($250,000 − $150,000);the loss on the sale is $6,000 ($100,000 − $94,000).If the indirect method is used,net income will be converted to cash flows from operating activities by adding back the loss on the sale,$6,000.The proceeds from the sale,$94,000,will be reflected as a cash inflow from investing activities.

A Company Bought $250,000 of Equipment with an Expected Life