Homework Answers
Selling Price of Equipment = $6490
Net Book Value of Asset = $4770
Profit on sale of asset = $1720 ($6490 - $4770)
Correct Statement:
The cash receipt of $6490 is shown as a positive cash flow in the investing activities section.
Reason: In Investing Activities Section, Sale Proceeds from Sale of Asset are Positive Cash Flow, whereas Payment made towards Purchase of Asset are Negative Cash Flows.
Incorrect Statements:
The gain on sale of $1720 is shown as a positive cash flow in the financing activities section.
The gain on sale of $1720 is added back to net income in the operating activities section.
Reason: The gain on sale of $1720 is to be deducted in Adjustments to reconcile net income to net cash flow from operating activities.
Incorrect Statement:
The book value of the asset sold is shown as a negative cash flow in the investing activities section.
Reason: Book Value is not recorded anywhere in the cash flow statement. In Investing Activities Section, Sale Proceeds from Sale of Asset are Positive Cash Flow and Profit / Loss on such sale is adjusted in Adjustments to reconcile net income to net cash flow from operating activities.
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