The Dalen Company purchased office equipment that cost $6,100 cash on January 1.

Question

The Dalen Company purchased office equipment that cost $6,100 cash on January 1. The equipment had an estimated five year useful life and an estimated salvage value of $300. The amount of expense shown on the income statement and the amount of cash outflow from operating activities shown on the statement of cash flows at the end of the first year would be (assume straight-line depreciation):

Income Statement Statement of
Cash Flows A. $ 6,100 $ 6,100 B. $ 1,160 $ 6,100 C. $ 1,160 $ 0 D. $ 0 $ 1,160

Explanation / Answer

Depreciation expense (6100-300)/5 1160 since depreciation is an expense it will be shown in income statement and cash disbursement of $6,100 for purchase of equipment will be outflow hence correct answer is option B

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