Question

On July 15, 2018, M.W. Morgan Distribution sold land for $55.5 million that it had purchased...

On July 15, 2018, M.W. Morgan Distribution sold land for $55.5 million that it had purchased in 2013 for $40.0 million.

What would be the amount(s) related to the sale that Morgan would report in its statement of cash flows for the year ended December 31, 2018, using the direct method? The indirect method?

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Answer #1

Cost of Land Sold = $40.0 million
Proceed from Sale = $55.5 million

Gain on Sale of Land = Proceed from Sale - Cost of Land Sold
Gain on Sale of Land = $55.5 million - $40.0 million
Gain on Sale of Land = $15.5 million

Statement of Cash Flows using Direct Method:

Proceed from sale of land ($55.5 million) will be shown under cash flows from investing activities.

Statement of Cash Flows using Indirect Method:

Proceed from sale of land ($55.5 million) will be shown under cash flows from investing activities and Gain on sale of land ($15.5 million) will be shown under cash flows from operating activities as a deduction from net income.

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