The following data are from a company\'s Automobile and the Accumulated Deprecia
ID: 2472522 • Letter: T
Question
The following data are from a company's Automobile and the Accumulated Depreciation—Automobile accounts:
Date
Automobile
Debit
Credit
Balance
Jan. 1
Balance brought forward
16,000
July 1
Traded for new auto
16,000
-0-
New auto
31,000
Accumulated depreciation -
Automobile
Jan. 1
Balance brought forward
12,000
July 1
One-half year's depreciation
2,000
14,000
Auto traded
14,000
-0-
Dec. 31
One-half year's depreciation
4,000
4,000
The old auto was traded for a new one, with the difference in values paid in cash. The income statement for the year shows a loss on the exchange of autos of USD 1,200.
Indicate the dollar amounts, the descriptions of these amounts, and their exact locations in a statement of cash flows—indirect method.
Date
Automobile
Debit
Credit
Balance
Jan. 1
Balance brought forward
16,000
July 1
Traded for new auto
16,000
-0-
New auto
31,000
Accumulated depreciation -
Automobile
Jan. 1
Balance brought forward
12,000
July 1
One-half year's depreciation
2,000
14,000
Auto traded
14,000
-0-
Dec. 31
One-half year's depreciation
4,000
4,000
Explanation / Answer
The entire purchase cost of new automobile (Net of value of old automobile) will be shown in the investing activity. The gain/loss on sale of old automobile will not incurr as it is traded at cost less accumulated depreciation. The depreciation on automobiles will be added back to the net income for calculation of cash from operating activities. Cash flow from investing activities Purchase of New Automobile ($31,000) ($45,000-$14,000) Cash flow from operating activities Depreciation on automobile $6,000 Depreciation on automobile will be added back to the net income for calculation of cash flow from operating activities Cash flow from financing activities Loss on exchange of USD ($1,200) (Loss on exchange of USD will be shown in cash flow from financing activities)
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