Question

Wisconsin Farm Equipment Company sold equipment for cash. The income statement shows a loss on the sale of

$6,000.

The net book value of the asset was

$30,900.

Which of the following statements describes the cash effect of the​ transaction?

A.negative cash flow of

$24,900

for financing activities

B.positive cash flow of

$24,900

from investing activities

C.negative cash flow of

$24,900

for operating activities

D.positive cash flow of

$36,900

from financing activities

Answer 1

First of all as equipment is sold there is positive cash flow.

Cash flow = Net Book Value of Asset - Loss on sale of asset

= 30900-6000

= $ 24900

Sale of Equipment forms part of investing activities of an Entity while preparing Statement of Cash flow.

Therefore,Option (B.) positive cash flow of $ 24900 from investing activities describe the cash effect of the transaction.

It neither form part of financing activites nor operating activities. However loss of $ 6000 will be added back, while calculating cash flow from operating activites under Indirect Method.