Final answer:
The loss related to the sale of the machine is $5,000, which is calculated by subtracting the sale price of $40,000 from the book value of $45,000. This amount is reported under the operating section of the cash flow statement using the indirect method.
Step-by-step explanation:
The amount of the loss related to the sale of a machine on which the company had an original cost of $130,000 and accumulated depreciation of $85,000 is calculated by first determining the machine's book value. The book value is the cost minus the accumulated depreciation, so in this case, it would be $130,000 - $85,000 = $45,000. Since the machine was sold for $40,000 cash, the loss on the sale would be the book value minus the sale price which equals $45,000 - $40,000 = $5,000.
This loss of $5,000 will be reported on the cash flow statement in the operating section when using the indirect method. It will be added back to the net income since it's a non-cash expense that reduces net income on the income statement.