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.

Q: Expert Answer

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 Amount of gain or loss on the sale } = ( Cost of long-term investment − Cost 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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Financial & Managerial Accounting

13th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781285866307

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BuyFind

Financial & Managerial Accounting

13th Edition

Carl Warren + 2 others

Publisher: Cengage Learning

ISBN: 9781285866307

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Answer 3

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Answer 4

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Answer 5

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 investment−Cost of�

Answer 6

B.

To determine

The effect of the transaction on cash flows.

Answer 7

C.

To determine

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

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