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21 February, 05:46

A building with a book value of $54,000 is sold for $63,000 cash. Using the indirect method, this transaction should be shown on the statement of cash flows as an increase of a.$63,000 from investing activities and a deduction from net income of $9,000 b.$9,000 from investing activities c.$54,000 from investing activities d.$54,000 from investing activities and an addition to net income of $9,000

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  1. 21 February, 08:14
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    Increase of $63,000 from investing activities

    and a deduction from net income of $9,000

    Explanation:

    The sales and purchase of assets fall under the investing activities. However the profit or loss realized from such transaction would have increased or decreased the net income as the case may be. Therefore this item of profit or loss which do not represent cash flow would be adjusted on the net income accordingly.

    Profit on sale of building = 63,000 - 54,000 = $9,000

    The transaction would be shown on the statement of cash flow as follows:

    Net income

    Less profit on sales of asset (9,000)

    Investing activities:

    add cash from Sale of asset 63,000

    The entries are summarized below:

    Increase of $63,000 from investing activities

    and a deduction from net income of $9,000
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