Question

Reporting changes in Equipment on Statement of Cash Flows An analysis of the general ledger accounts indicates that delivery equipment, which cost $200,000 and on which accumulated depreciation totaled $60,000 on the date of sale, was sold for $132,500 during the year. Using this information, indicate the items to be reported on the statement of cash flows.

Transaction Section of Statement Added or Deducted
of Cash Flows
$200,000 cost of equipment Not shown on statement Not applicable
$60000 accumulated
depreciation Not shown on statement Not applicable
$132,500 sales price Cash flows from investing
activities Added
$7,500 loss on sale of equipment
(assume the indirect method
is used) Cash flows from operating
activities Added

Answer 1

$200,000 cost of Equipment

This is not shown in the Cash flow statement unless it was purchased in the current year. Seeing as the asset is being sold significantly less than it was bought, we will assume this is not the case so this does not go into the Cashflow statement.

$60,000 Accumulated depreciation

NOT SHOWN IN CASHFLOW STATEMENT because it is only the current year depreciation that is shown.

$132,500 sales price.

This is ADDED TO CASHFLOW FROM INVESTING ACTIVITIES because investing activities deals with fixed assets so when they are sold, they are added back to the Investing activities to reflect the inflow of cash.

$7,500 loss on Sale of Equipment

This is ADDED TO CASHFLOW FROM OPERATING ACTIVITIES because the sales price already includes it in Investing activities yet Net income has accounted for it already by deducting it. To avoid double counting, the loss will have to be cancelled out by adding it back to the operating activities.