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A long-term investment in bonds with a cost of $500,000 was sold for $600,000 cash. (A) What was the gain or loss on the sale? (B) What was the effect of the transaction on cash flows? (C) How should the transaction lie reported on the statement of cash flows if cash flows from operating activities are reported by the indirect method.

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Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307

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BuyFindarrow_forward

Financial & Managerial Accounting

13th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285866307
Chapter 14, Problem 6DQ
Textbook Problem
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A long-term investment in bonds with a cost of $500,000 was sold for $600,000 cash. (A) What was the gain or loss on the sale? (B) What was the effect of the transaction on cash flows? (C) How should the transaction lie reported on the statement of cash flows if cash flows from operating activities are reported by the indirect method.

A.

To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Cash flows from operating activities: These are the cash produced by the normal business operations.

Indirect method: Under this method, the following amounts are to be adjusted from the Net Incometo calculate the net cash provided from operating activities.

Cash flows from operating activities (Indirect method)
 
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense and amortization expense
         Loss on sale of plant assets
 
Deduct: Increase in current assets
              Decrease in current liabilities
              Gain on sale of plant assets
Net cash provided from or used by operating activities

The below table shows the way of calculation of cash flows from operating activities:

To Determine: The amount of gain or loss on the sale.

Explanation of Solution

Amount of gain orloss on the sale} =( Cost of long-term investmentCost of�

B.

To determine
The effect of the transaction on cash flows.

C.

To determine
The reporting of the transactions on the statement of cash flows under indirect method.

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Chapter 14 Solutions

Financial & Managerial Accounting
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Ch. 14 - Classifying cash flows Identify whether each of...Ch. 14 - Classifying cash flows Identify whether each of...Ch. 14 - Adjustments to net incomeindirect method Pearl...Ch. 14 - Adjustments to net incomeindirect method Ya Wen...Ch. 14 - Changes in current operating assets and...Ch. 14 - Changes in current operating assets and...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Land transactions on the statement of cash flows...Ch. 14 - Land transactions on the statement of cash flows...Ch. 14 - Cash received from customersdirect method Sales...Ch. 14 - Cash received from customersdirect method Sales...Ch. 14 - Cash payments for merchandisedirect method The...Ch. 14 - Cash payments for merchandisedirect method The...Ch. 14 - Free cash flow McMahon Inc. reported the following...Ch. 14 - Free cash flow Dillin Inc. reported the following...Ch. 14 - Cash flows from operating activitiesnet loss...Ch. 14 - Effect of transactions on cash flows State the...Ch. 14 - Classifying cash flows Identify the type of cash...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Determining cash payments to stockholders The...Ch. 14 - Reporting changes in equipment on statement of...Ch. 14 - Reporting changes in equipment on statement of...Ch. 14 - Reporting land transactions on statement of cash...Ch. 14 - Reporting stockholders' equity items on statement...Ch. 14 - Reporting land acquisition for cash and mortgage...Ch. 14 - Reporting issuance and retirement of long-term...Ch. 14 - Determining net income from net cash flow from...Ch. 14 - Cash flows from operating activitiesindirect...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsindirect method List the...Ch. 14 - Cash flows from operating activitiesdirect method...Ch. 14 - Cash paid for merchandise purchases The cost of...Ch. 14 - Determining selected amounts for cash flows from...Ch. 14 - Cash flows from operating activities direct method...Ch. 14 - Cash flows from operating activitiesdirect method...Ch. 14 - Free cash flow Sweeter Enterprises Inc. has cash...Ch. 14 - Free cash flow The financial statements for Nike,...Ch. 14 - Free cash flow Lovato Motors Inc. has cash flows...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsdirect method The...Ch. 14 - Statement of cash flowsdirect method applied to PR...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsindirect method The...Ch. 14 - Statement of cash flowsdirect method The...Ch. 14 - Statement of cash flowsdirect method applied to PR...Ch. 14 - Ethics and professional conduct in business Lucas...Ch. 14 - Using the statement of cash flows You are...Ch. 14 - Analysis of statement of cash flows Dillip Lachgar...Ch. 14 - Analysis of cash flow from operations The...

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