The accounting records of Calli Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows:
Cash .........................................1,800
Accumulated Depreciation .......................4,600
Loss on Disposal of Equipment .................... 400
Equipment .......................................6,000
In preparing the statement of cash flows using the work sheet, the accountant.
A)adds the $400 loss to net income in computing cash flow from operations.
B)subtracts the $400 loss from net income in computing cash flow from operations.
C)adds the $400 loss to net income in computing cash flow from investing activities.
D)subtracts the $400 loss from net income in computing cash flow investing activities.
E)subtracts the $400 loss from retained earnings in computing cash flow investing activities.

Question

The accounting records of Calli Inc.indicate that the firm sold for $1,800 during Year 2 a machine originally costing $6,000, with accumulated depreciation of $4,600.The journal entry made to record this sale was as follows:
 Cash .........................................1,800
Accumulated Depreciation .......................4,600
Loss on Disposal of Equipment .................... 400
Equipment .......................................6,000
In preparing the statement of cash flows using the work sheet, the accountant.
A)adds the $400 loss to net income in computing cash flow from operations.
B)subtracts the $400 loss from net income in computing cash flow from operations.
C)adds the $400 loss to net income in computing cash flow from investing activities.
D)subtracts the $400 loss from net income in computing cash flow investing activities.
E)subtracts the $400 loss from retained earnings in computing cash flow investing activities.

Quizplus · Accepted Answer

The $400 loss on disposal of equipment is added back to net income in the operating activities section of the cash flow statement because it is a non-cash expense that reduced net income.

The Accounting Records of Calli Inc