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Math  /  Data & Statistics

QuestionAn analysis of the general ledger accounts indicates that office equipment, which cost $280,000\$ 280,000 and on which accumulated depreciation totaled $153,900\$ 153,900 on the date of sale, was sold for $108,200\$ 108,200 during the year.
Using this information, indicate the items to be reported on the statement of cash flows.
Transactions $280,000\$ 280,000 cost of office equipment \153,900accumulateddepreciation153,900 accumulated depreciation \108,200 108,200 sales price $17,900\$ 17,900 loss on sale of equipment (assume the indirect method is used)
Section of Statement of Cash Flows □\square □\square □\square □\square
Added or Deducted □\square □\square \qquad \qquad

Studdy Solution

STEP 1

What is this asking? We need to figure out how the sale of some office equipment affects the statement of cash flows, specifically where the numbers go and whether they're added or subtracted. Watch out! Don't mix up the *cost* of the equipment, the *accumulated depreciation*, and the *sales price*.
Also, remember we're using the *indirect method*!

STEP 2

1. Calculate the book value.
2. Calculate the gain/loss.
3. Classify the cash flow.
4. Determine the adjustment for the indirect method.

STEP 3

The **book value** is what the equipment is worth *on the books*, after accounting for depreciation.
It's like figuring out how much of the equipment's value is *left* after all the wear and tear.

STEP 4

We **calculate the book value** by subtracting the **accumulated depreciation** $153,900\$153,900 from the **original cost** $280,000\$280,000: $280,000−$153,900=$126,100 \$280,000 - \$153,900 = \$126,100 So, the **book value** of the equipment is $126,100\$126,100.

STEP 5

Did we make money or lose money on the sale?
Let's find out!
The **gain/loss** is the difference between the *sales price* and the *book value*.

STEP 6

We **calculate the gain/loss** by subtracting the **book value** $126,100\$126,100 from the **sales price** $108,200\$108,200: $108,200−$126,100=−$17,900 \$108,200 - \$126,100 = -\$17,900 Since the result is negative, we have a **loss** of $17,900\$17,900, which matches the information given in the problem.

STEP 7

The $108,200\$108,200 from the sale is a **cash inflow** from *investing activities*.
Selling equipment is not part of the normal day-to-day business operations, so it's not an operating activity.

STEP 8

Because we're using the **indirect method**, we start with *net income* and make adjustments to arrive at cash flow from operations.
The loss on the sale of equipment *reduces* net income, but it's a *non-cash* item.
So, we need to **add back** the loss to net income when calculating cash flow from operations.

STEP 9

We **add** the **loss** of $17,900\$17,900 back to the net income in the operating activities section.
This adjustment ensures that the non-cash loss doesn't affect our calculation of *cash* flow from operations.

STEP 10

* **Section of Statement of Cash Flows:** Investing Activities * **Added or Deducted:** Added * **Amount:** $108,200\$108,200 * **Section of Statement of Cash Flows:** Operating Activities * **Added or Deducted:** Added * **Amount:** $17,900\$17,900

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