1. A company sold a piece of PP&E for 8,000 that had originally cost 25,000. Accumulated...
1. A company sold a piece of PP&E for 8,000 that had originally cost 25,000. Accumulated depreciation was 15,000. What amount if any would appear in the operating section of the cash flow statement (indirect method) because of this transaction?
Homework Answers
$2000 loss on sold piece of PP&E is to be added to Net Income in the operating section of the cash flow statement (indirect method) because of this transaction. Because the loss was deducted at the time of calculation of net income and it is non cash and non operating item, so it is required to be added to the net income to calculate cash from operations.
The explanation is as follows:-
| Calculation of Book Value of sold piece of PP&E:- | ||
| Original Cost of Equipment | $ 25,000 | |
| Less: Accumulated depreciation | $ 15,000 | |
| Book Value of Equipment | $ 10,000 | |
| Calculation of Loss on sold piece of PP&E:- | ||
| Book Value of Equipment | $ 10,000 | |
| Less: Cash received on sale of Equipment | $ 8,000 | |
| Loss on sold piece of PP&E | $ 2,000 | |
| Cash Flow From Operating Activities: | ||
| Net income | XXXX | |
| Adjustments to convert net income to cash basis: | ||
| Add: Loss on sold piece of PP&E | $ 2000 | |
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