On January 1,2016,the Chisolm Company purchased equipment for $36,000 cash.On December 31,2016,depreciation of $9,000 was recorded.Which of the following correctly shows the combined effect of these two events on the income statement and statement of cash flows? Chisolm uses the direct method.

Question

Quizplus · Accepted Answer

The purchase of equipment for $36,000 was a cash outflow and would be reflected on the statement of cash flows as a decrease in cash from operating activities. The depreciation of $9,000 would be reflected on the income statement as an expense, reducing net income. The combined effect would be a decrease in cash by $36,000 and a decrease in net income by $9,000. Since Chisolm uses the direct method, the depreciation would not be included in the operating activities section of the statement of cash flows. Therefore, the correct answer is B, as it shows a $36,000 decrease in cash from operating activities and a $9,000 decrease in net income on the income statement.

On January 1,2016,the Chisolm Company Purchased Equipment for $36,000 Cash