The three accounts shown below appear in the general ledger of Chaudry Corp. dur
ID: 2371363 • Letter: T
Question
The three accounts shown below appear in the general ledger of Chaudry Corp. during 2014.Equipment Date Debit Credit Balance Jan. 1 Balance 158,470 July 31 Purchase of equipment 71,210 229,680 Sept. 2 Cost of equipment constructed 53,560 283,240 Nov. 10 Cost of equipment sold 50,960 232,280 Accumulated Depreciation Equipment Date Debit Credit Balance Accumulated Depreciation Equipment Date Debit Credit Balance Jan. 1 Balance 158,470 July 31 Purchase of equipment 71,210 229,680 Sept. 2 Cost of equipment constructed 53,560 283,240 Nov. 10 Cost of equipment sold 50,960 232,280 Accumulated Depreciation
Explanation / Answer
Cash flow from Operations is correct. Note that the book loss on the sale of equipment of 5,030 was added back to Net Income from Operations, because it will be reported under Investing.
To get cash flow from sale of equipment, first determine its net book value - Cost 48,270 less Accum Depr of 31,960 left a NBV of 16,310. But the reported loss on sale of eqpt was only 5,030. That means the cash proceeds from the sale of equipment was 11,280. Report that as a positive cash flow under Investing. The book loss of 5,030 was moved from Operating activity, but replaced by the actual cash proceeds under Investing.
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