Question

During 2019, a team was sold for $ 39,000. The equipment had originally been purchased for $ 64,000 and had a book value of $ 36,000 at the time of sale. The accumulated depreciation account balance as of December 31, 2018 was $ 172,000 and as of December 31, 2019 it was $ 184,000. Determine and calculate the adjustments, based on these data, to be made to net income if the indirect method is used to report operating activities in the statement of cash flows. Also, determine if something should occur in the other two sections of that state as a consequence of the situation described.

1) Indicate nature and calculate amount of adjustment # 1

2) Indicate nature and calculate amount of adjustment # 2

3) Possible presentation in other sections of the EFE.

Answer 1

1) Adjustment # 1 will be for the depreciation expense for the year which is added back to the net income to arrive at the cash flow from operating activities since depreciation is a non-cash expense.

Accumulated depreciation on equipment sold = $64000 - $36000 = $28000

Depreciation expense for the year = $184000 - ($172000 - $28000) = $184000 - $144000 = $40000

Adjustment # 1: Depreciation expense $40000

2) Adjustment # 2 will be for the gain or loss on the sale of equipment.

Gain (loss) = Sale procceds - Book value = $39000 - $36000 = $3000

Adjustment # 2: Gain on disposal $3000

3)

Cash Flows from Investing Activities:
Sale proceeds of equipment	$ 39000