Question

A building with a book value of $54,000 is sold for $63,000 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as an increase of a.$63,000 from investing activities and a deduction from net income of $9,000 b.$9,000 from investing activities c.$54,000 from investing activities d.$54,000 from investing activities and an addition to net income of $9,000

Answer 1

Answer:

Increase of $63,000 from investing activities

and a deduction from net income of $9,000

Explanation:

The sales and purchase of assets fall under the investing activities. However the profit or loss realized from such transaction would have increased or decreased the net income as the case may be . Therefore this item of profit or loss which do not represent cash flow  would be adjusted on the net income accordingly.

Profit on sale of building = 63,000 - 54,000 = $9,000

The transaction would be shown on the statement of cash flow as follows:

Net income

Less profit on sales of asset                            (9,000)

Investing activities:

add cash from Sale of asset                          63,000

The entries are summarized below:

Increase of $63,000 from investing activities

and a deduction from net income of $9,000