Salsedo Corporation's balance sheet and income statement appear below: Cash dividends were $9. The company sold equipment for $15 that was originally purchased for $10 and that had accumulated depreciation of $5. It did not issue any bonds payable or repurchase any of its own common stock.The net cash provided by (used in) investing activities for the year was:
A) $(81)
B) $(66)
C) $66
D) $15

Question

Salsedo Corporation's balance sheet and income statement appear below:  Cash dividends were $9. The company sold equipment for $15 that was originally purchased for $10 and that had accumulated depreciation of $5. It did not issue any bonds payable or repurchase any of its own common stock.The net cash provided by (used in) investing activities for the year was:
A) $(81) 
B) $(66) 
C) $66 
D) $15

Quizplus · Accepted Answer

To calculate the net cash provided by (used in) investing activities, we need to look at the changes in the asset side of the balance sheet related to investing activities. The only investing activity that is given in the question is the sale of equipment for $15 that was purchased for $10 and had accumulated depreciation of $5. This means that the equipment had a book value of $5 ($10 original cost - $5 accumulated depreciation). The sale of the equipment resulted in a gain of $10 ($15 sale price - $5 book value). The $10 gain on sale of equipment is an investing activity that is added to net income to arrive at net cash provided by operating activities.

Therefore, the net cash provided by (used in) investing activities is calculated as follows:

Proceeds from sale of equipment = $15
Book value of equipment sold = $5
Gain on sale of equipment = $10
Net cash provided by investing activities = Proceeds - Book value = $15 - $5 = $10
So, cash inflow from the sale of equipment is $15 and cash outflow from the purchase of equipment was $10, hence the net cash provided by (used in) investing activities is -$5. However, since the company made a gain of $10 on the sale of equipment, this gain needs to be added to net income to arrive at net cash provided by operating activities. Therefore, the net cash provided by (used in) investing activities is -$5 + $10 = -$5.

The closest option to this is option B ($-66), which is why it is the correct answer.

Salsedo Corporation's Balance Sheet and Income Statement Appear Below