Question

a. Equipment with a book value of $65,300 and an original cost of $133,000 was sold at a loss of $14,000. b. Paid $89,000 cash for a new truck. c. Sold land costing $154,000 for $198,000 cash, yielding a gain of $44,000. d. Long-term investments in stock were sold for $60,800 cash, yielding a gain of $4,150. Use the above information to determine cash flows from investing activities. (Amounts to be deducted should be indicated with a minus sign.) Statement of Cash Flows (partial) Cash flows from investing activities

Answer 1

Solution

Working Note

a) Sale of Equipment will be a Cash Inflow. In order to get the sale price of equipment, loss amount on sale will be deducted from the book value of the equipment.

ie. Book Value of Equipment = $ 65,300

Less:- Loss on Sale   = $ 14,000

So Sale Price = $ 51,300 (Cash Inflow)

b) Paid for New Truck for $ 89,000 is a Cash Outflow

c) Cash inflow from sale of Land is $ 198,000. Though the cost of land is only $ 154000, it was sold at a gain of $

44,000. So the sale price is $ 198,000 which is directly given in the question. Here the actual cash flow is the sale price received from sale of land.

d) Cash Inflow from sale of Long Term Investment in Stock is $ 60,800. Gain of $ 4,150 is relevant only for

calculating the book value of Investment in stock. Here Gain amount is not  relevant for calculating the cash

inflow because the question directly tells the cash inflow amount as $ 60,800.

  Statement of Cash Flows (Partial)

Cash Flows from Investing Activities

Cash Inflow from Sale of Equipment	$ 51,300
Cash Outflow - Paid for New Truck	($ 89000)
Cash Inflow from Sale of Land	$ 198000
Cash Inflow from Sale of Long Term Investments in Stock	$ 60,800
So Cash Flow from Investing Activities (Net Cash Inflow)	$ 221,100