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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Fully depreciated equipment costing $50,000 is discarded. What is the effect of the transaction on cash flows if (a) $15,000 cash is received for the equipment, (b) no cash is received for the equipment?

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.

Following are the four classifications of cash flows activities that are related to the cash flow statement:

  • Operating Activities: In the operating activities section of the cash flow statement, cash inflows from the revenue of the business operations are reported, while cash outflows for the expenses for the business operations are reported.
  • Investing activities: In the investing activities section of the cash flow statement, increase and decrease in the long-term assets representing outflow and inflow of cash on account of investing activities is reported.
  • Financing activities: In the financing activities section of the cash flow, increase and decrease in the long-term liabilities and equities representing inflow and outflow of cash on account of financing activities are reported.
  • Non-cash activities: The transactions where cash is not involved are treated as non-cash activities.

To Determine: The effect of the transaction if $15,000 cash received for the equipment.

Explanation

Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.

The below table shows the way of calculation of cash flows 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

Cash provided by or used in investing activities is a section of statement of cash flows...

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