Asked by Kelin Martinez on Jun 18, 2024
Verified
A building with a book value of $54,000 is sold for $63,000 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as an increase of
A) $54,000 from investing activities
B) $63,000 from investing activities and a deduction from net income of $9,000
C) $9,000 from investing activities
D) $54,000 from investing activities and an addition to net income of $9,000
Investing Activities
Transactions involving the acquisition and disposal of long-term assets and other investments not considered as cash equivalents.
Book Value
The net value of a company's assets as recorded on its financial statements, subtracting liabilities from the total assets.
Indirect Method
A way of calculating cash flows in the cash flow statement where net income is adjusted for changes in balance sheet items to calculate operating cash flows.
- Ascertain the influence of buying, selling, and depreciating equipment on the financial statements related to cash flows.
- Evaluate and determine cash transactions linked to investment actions, including asset sales.
Verified Answer
TM
Tasheka MartinJun 24, 2024
Final Answer :
B
Explanation :
The sale of the building resulted in a cash inflow of $63,000, which should be reported as an increase in investing activities. However, since the building had a book value of $54,000, the difference of $9,000 should be deducted from net income as a loss from the sale of the asset. Therefore, the transaction should be reported as an increase of $63,000 from investing activities and a deduction from net income of $9,000 on the statement of cash flows using the indirect method.
Learning Objectives
- Ascertain the influence of buying, selling, and depreciating equipment on the financial statements related to cash flows.
- Evaluate and determine cash transactions linked to investment actions, including asset sales.