Question

Hager Company sold some of its plant assets during 2021. 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, 2021, as a(n) _________.

Answer 1

an inflow of $90,000 in the investing activities section. Furthermore, a gain on disposal of $30,000 will be deducted from the operating activities section.

Step-by-step explanation:

The cash flow statement categories the company's transactions in a financial period into 3 groups; these are operating, investing and financing.

The net profit/loss, depreciation, changes in current assets (other than cash) and liabilities are considered as operating activities including income taxes.

The sale of assets, interest received, purchase of investments are examples of investing activities while the issuance of stocks, debt principal deduction (loan settlement), issuance of debt securities etc are examples of financing activities.

An increase in assets other than cash is an outflow while an increase in liabilities is an inflow. Depreciation and other non-cash expenses deducted in the income statements are added back while the non-cash income such gain on asset are deducted from net income.

As such the disposal is recorded as an inflow of $90,000 in the investing activities section.

The gain on disposal

= $90,000 - ($900,000 - $840,000)

= $30,000

This will be deducted from net income in the operating activities section.