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Chattel Company sold for $7,000 equipment that originally cost $40,000 and had depreciation in the amount...

Chattel Company sold for $7,000 equipment that originally cost $40,000 and had depreciation in the amount of $34,000 taken. What amount is reported in the Cash Flows from Financing Activities section of the Statement of Cash Flows?

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Answer #1

Nil amount will be reported in the Cash Flows from Financing Activities section of the Statement of Cash Flows because depreciation on equipment which has been accumulated in current year and transferred to Income statement will added back to net profit to calculate "Cash Flows from operating Activities". Depreciation is added back to net profit because it is non cash expenditure.

Gain on sale of equipment [7000 - (40000 - 34000)] = 1000 will be deducted from net profit to calculate  "Cash Flows from operating Activities" because net amount of sale will be shown as investing activities.

Sale of equipment for $7000 will be shown as "Cash Flows from investing Activities". So, nil amount will be reported as financing activities.

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