Question

On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:

a) Purchased for cash
b) Sold for $165,000
c) Initial balance
d) None of the above

Answer 1

Both 'Purchased for cash' and 'Sold for \$165,000' relate to cash transactions and should be reported on the statement of cash flows within the investing activities section.

Step-by-step explanation:

The student's question relates to the reporting of fixed asset transactions on the statement of cash flows. When a company purchases fixed assets for cash, this is reported as a cash outflow in the investing activities section. Similarly, when a fixed asset is sold, it is reported as a cash inflow in the same section of the statement of cash flows. Thus, the items to be reported are 'Purchased for cash' and 'Sold for $165,000'.

In the example provided, where Freda bought a house for cash and its value increased, this information would only be relevant to the statement of cash flows if the house were sold, generating a cash inflow. The initial cash purchase would have been reported when it occurred. Ben's house purchase also requires a down payment, which is a cash outflow, and any cash principal repayment on the loan is reported in the financing activities section.