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When preparing the financial statements for 2014, John Grinder, CFO for Ocean Technologies Inc., noticed that during the year the company sold equipment with an original cost of $50,000 for cash proceeds of $18,000. At the time of the sale, the equipment had a carrying amount of $20,000. Ocean Technologies uses the direct method to prepare its cash flow statement.
-On the 2014 cash flow statement, the company should report
A) cash proceeds from investing activities, $20,000.
B) cash proceeds from operating activities, $18,000.
C) cash proceeds from investing activities, $18,000.
D) cash proceeds from operating activities, $20,000.

Question

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When preparing the financial statements for 2014, John Grinder, CFO for Ocean Technologies Inc., noticed that during the year the company sold equipment with an original cost of $50,000 for cash proceeds of $18,000. At the time of the sale, the equipment had a carrying amount of $20,000. Ocean Technologies uses the direct method to prepare its cash flow statement.
-On the 2014 cash flow statement, the company should report
A) cash proceeds from investing activities, $20,000.
B) cash proceeds from operating activities, $18,000.
C) cash proceeds from investing activities, $18,000.
D) cash proceeds from operating activities, $20,000.

Quizplus · Accepted Answer

The correct answer is C) cash proceeds from investing activities, $18,000. This is because the sale of equipment is considered an investing activity, and the cash proceeds from the sale amount to $18,000, which is the actual amount received from the sale.

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