Rodriguez Inc. uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet: Additional information provided by the company includes the following: 1)Equipment costing $65,000 was purchased for cash.
"2)Equipment with a cost of $32,000 and accumulated depreciation of $7,000 was sold for $45,000.
What was the amount of net cash provided by (used for)investing activities?"
A)$120,000
B)$20,000
C)$(120,000)
D)$(20,000)

Question

Rodriguez Inc. uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet:  Additional information provided by the company includes the following: 1)Equipment costing $65,000 was purchased for cash.
"2)Equipment with a cost of $32,000 and accumulated depreciation of $7,000 was sold for $45,000.
What was the amount of net cash provided by (used for)investing activities?"
A)$120,000 
B)$20,000 
C)$(120,000) 
D)$(20,000)

Quizplus · Accepted Answer

- To calculate net cash provided by (used for) investing activities, we need to look at changes in long-term assets such as equipment. 
- The purchase of equipment for $65,000 is a cash outflow and would be subtracted from net income to calculate net cash provided by operating activities, not investing activities. 
- The sale of equipment for $45,000 is a cash inflow and would be added to net income to calculate net cash provided by operating activities, not investing activities. 
- The difference between the cost and accumulated depreciation of the equipment sold is a gain on disposal of assets, which is also added to net income to calculate net cash provided by operating activities. 
- The net effect on cash from these transactions is a cash inflow of $20,000 (i.e. $45,000 - $32,000 - $7,000). Therefore, the correct answer is D) $(20,000).