Question

Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018

Included in net income were depreciation expense of $16,800 and a gain on sale of equipment of $3,400. The equipment had an historical cost of $80,000 and accumulated depreciation of $48,000. Each of the following accounts increased during 2018:
Land------------------------------$11,000
Prepaid rent---------------------$13,600
Available-for-sale securities-----$2,000
Bonds payable------------------$10,000
What is the amount of cash provided by or used by investing activities for Jarvis, Inc. for the year ended December 31, 2018?
a. ( $ 9,600)
b. $33,400
c. $22,400
d. $24,400

Answer 1

The amount of cash provided by or used by investing activities for Howell, Inc. for the year ended December 31, 2018, is $24,400 option (d). This accounts for the cash inflow from selling the equipment after adjusting for the gain and the cash outflow from acquiring land.

Step-by-step explanation:

To determine the amount of cash provided by or used by investing activities for Howell, Inc. for the year ended December 31, 2018, we must consider the relevant transactions affecting investing activities. These include the sale of equipment and the purchase of land. The gain on the sale of equipment of $3,400 suggests that the cash received from the sale must be higher than the book value of the equipment that was sold.

The equipment had an original cost of $80,000 with accumulated depreciation of $48,000, resulting in a book value of $32,000 ($80,000 - $48,000). To find the cash received from the sale, we must add the gain recognized ($3,400) to the book value of the equipment, resulting in $35,400 ($32,000 + $3,400) of cash inflow from the sale of equipment.

Furthermore, the purchase of land for $11,000 represents a cash outflow. To calculate the net cash provided by or used by investing activities, we subtract the cash outflow from the cash inflow, which gives us the result: $35,400 (inflow) - $11,000 (outflow) = $24,400.