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28 July, 15:35

Hsu Corporation had a beginning balance of $6,000 in its Land account. During the year Hsu Corporation sold some of its land, reducing the balance in the Land account at the end of the year to $1,500. Hsu also recognized a $700 gain on the sale of land on its current year income statement. What is the effect of this sale on the company's statement of cash flows assuming that Hsu Corporation made no land purchases during the year?

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  1. 28 July, 19:06
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    the gain on disposal of $700 is deducted from the net profit in the segment of cash flows from operating activities. the cash received of $5,200 is recognized as a cash inflow in the segment of the cash flows from Investing activities

    Explanation:

    Cost of land held at the start of the year = $6,000

    Closing balance = $1,500

    Cost of land sold = $6,000 - $1,500

    = $4,500

    Gain on sale = $700

    Therefore, amount received on disposal = $4,500 + $700

    = $5,200

    The effect on of this sale on the company's statement of cash flows assuming that Hsu Corporation made no land purchases during the year is in two parts;

    the gain on disposal of $700 is deducted from the net profit in the segment of cash flows from operating activities. the cash received of $5,200 is recognized as a cash inflow in the segment of the cash flows from Investing activities
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