[The following information applies to the questions displayed below.]
An analysis of changes in selected balance sheet accounts of Johnson Corporation shows the following for the current year:
Johnson's income statement for the current year includes a $14,000 loss on disposal of plant assets.All payments and proceeds relating to purchase or sale of plant assets were in cash.
-How should purchases,sales,and depreciation of plant assets be classified in Johnson's statement of cash flows for the current year? (Assume the direct method is used by Johnson. )
A)Purchases of plant assets are classified as investing activities;sales of plant assets are classified as financing activities;depreciation is classified as an operating activity.
B)Purchases of plant assets and depreciation are classified as investing activities;sales of plant assets are classified as financing activities.
C)Purchases and sales of plant assets are classified as investing activities;depreciation does not appear as an operating,financing,or investing activity.
D)Since plant assets are used to generate income from operations,purchases,sales,and depreciation of plant assets are all classified as operating activities.

Question

[The following information applies to the questions displayed below.]
An analysis of changes in selected balance sheet accounts of Johnson Corporation shows the following for the current year:
  Johnson's income statement for the current year includes a $14,000 loss on disposal of plant assets.All payments and proceeds relating to purchase or sale of plant assets were in cash.
-How should purchases,sales,and depreciation of plant assets be classified in Johnson's statement of cash flows for the current year? (Assume the direct method is used by Johnson. )
A)Purchases of plant assets are classified as investing activities;sales of plant assets are classified as financing activities;depreciation is classified as an operating activity. 
B)Purchases of plant assets and depreciation are classified as investing activities;sales of plant assets are classified as financing activities. 
C)Purchases and sales of plant assets are classified as investing activities;depreciation does not appear as an operating,financing,or investing activity. 
D)Since plant assets are used to generate income from operations,purchases,sales,and depreciation of plant assets are all classified as operating activities.

Quizplus · Accepted Answer

Purchases and sales of plant assets are investing activities because they involve the acquisition and disposal of long-term assets. Depreciation is a non-cash expense and does not appear on the statement of cash flows; it is adjusted for when calculating cash flow from operating activities using the indirect method, but it does not directly appear as a cash flow item.

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