Question

] Bear Co. prepares its statement of cash flows using the indirect method. Bear sold equipment with a carrying value of $500,000 for cash of $400,000. How should Bear report the transaction in the operating and investing activities sections of its statement of cash flows?

Answer 1

Add: $100,000 in net income in cash flow from operating activities.

Add; $400,000 in cash flow from investing activities.

Step-by-step explanation:

Sale of an equipment is a cash inflow from investing activity.

Here, the cash inflow will be total amount received on sale = $400,000.

Now since the book value of equipment was $500,000

There is a loss of $100,000 = $500,000 - $400,000 from such sale, such loss would have been shown as a deduction that is a debit item in net income, that $100,000 shall be reversed and added back to net income in cash flow from operating transactions.

Final Answer

Add: $100,000 in net income in cash flow from operating activities.

Add; $400,000 in cash flow from investing activities.

Answer 2

The transaction in the operating and investing activities sections of its statement of cash flows is a loss of $400,000 and the sale of equipment $400,000

Step-by-step explanation:

Operating Activity: It includes all those activities which are related to the changes in the working capital that mean increase or decrease in currents assets and current liabilities. Moreover, it also includes loss/ gain on sale of fixed assets and depreciation, etc.

Investing activity: It records those transactions which include sale and purchase of fixed assets.

So, by going through the meaning of operating activity and investing activity we get to know that the operating activity record a loss of $100,000 which comes from Carrying value - sales value which is added to the net income.

And, the investing records sale price of equipment which is $400,000

Hence, the transaction in the operating and investing activities sections of its statement of cash flows is a loss of $400,000 and the sale of equipment $400,000