Question

Hager Company sold some of its plant assets during 2018. The original cost of the plant assets was $900,000 and the accumulated depreciation at date of sale was $840,000. The proceeds from the sale of the plant assets were $90,000. The information concerning the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) for the year ended December 31, 2018, as a(n)

a. subtraction from net income of $30,000 and a $60,000 increase in cash flows from financing activities.
b. addition to net income of $30,000 and a $90,000 increase in cash flows from investing activities.
c. subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities.
d. addition of $90,000 to net income.

Answer 1

The sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) as a subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities. The gain from the sale is a non-operating item that represents a cash inflow from the investment activities of the company.

Step-by-step explanation:

In this case, the sale of the plant assets should be shown on Hager's statement of cash flows (indirect method) as a subtraction from net income of $30,000 and a $90,000 increase in cash flows from investing activities.

When a company sells its plant assets, it needs to account for the gain or loss on the sale. In this case, the original cost of the plant assets was $900,000, and the accumulated depreciation was $840,000. Therefore, the carrying amount of the assets was $60,000 ($900,000 - $840,000).

Since the proceeds from the sale were $90,000, there was a gain of $30,000 ($90,000 - $60,000). This gain is subtracted from net income because it is a non-operating item, and it represents a cash inflow from the investment activities of the company.