Question

A building with a book value of $36,071 is sold for $58,166 cash. Using the indirect method, choose how this transaction should be shown on the statement of cash flows. Select the correct answer.

a. an increase of $58,166 from investing activities
b. an increase of $58,166 from investing activities and a deduction from net income of $22,095
c. an increase of $36,071 from investing activities
d. an increase of $36,071 from investing activities and an addition to net income of $22,095

Answer 1

b. an increase of $58,166 from investing activities and a deduction from net income of $22,095

Step-by-step explanation:

The profit on sale of asset = Sale price - Book Value

Sale Price = $58,166

Book Value = $36,071

Profit = $58,166 - $36,071 = $22,095

This profit is included in net income and under cash flow statement, sale of asset is an cash flow from investing activity, under that net cash received from sale of asset is shown = $58,166, and any gain recognized in net income = $22,095 is deducted from net income in cash flow statement.

Therefore, correct option is

b. an increase of $58,166 from investing activities and a deduction from net income of $22,095