Use the following information for questions 18-19.
The statements of financial position for King Lear Corp. at the end of 2020 and 2019 are as follows: During 2020, land was acquired in exchange for common shares (which had a market value of $ 150,000 at the time). All equipment purchased was for cash. Equipment costing $ 15,000 was sold for $ 6,000 cash; book value of the equipment at the time of sale was $ 12,000, and the loss was included in net income. Cash dividends of $ 30,000 were declared and paid during the year. King adheres to ASPE and uses the indirect method when preparing the statement of cash flows.
-The cash provided by (used in) investing activities was
A) $ 39,000.
B) $ (54,000).
C) $ (60,000).
D) $ (204,000).

Question

Use the following information for questions 18-19.
The statements of financial position for King Lear Corp. at the end of 2020 and 2019 are as follows:  During 2020, land was acquired in exchange for common shares (which had a market value of $ 150,000 at the time). All equipment purchased was for cash. Equipment costing $ 15,000 was sold for $ 6,000 cash; book value of the equipment at the time of sale was $ 12,000, and the loss was included in net income. Cash dividends of $ 30,000 were declared and paid during the year. King adheres to ASPE and uses the indirect method when preparing the statement of cash flows.
-The cash provided by (used in) investing activities was
A) $ 39,000. 
B) $ (54,000). 
C) $ (60,000). 
D) $ (204,000).

Quizplus · Accepted Answer

- Land acquired in exchange for common shares (non-cash transaction) is not included in cash flows from investing activities.
- Equipment purchased for cash is included in cash flows from investing activities. The amount of equipment purchased in 2020 is $ 45,000 ($ 57,000 - $ 12,000).
- Equipment sold for cash is also included in cash flows from investing activities. The proceeds from the sale of equipment are $ 6,000, which is less than the book value of $ 12,000, resulting in a loss of $ 3,000. Therefore, the net cash outflow from the sale of equipment is $ 9,000 ($ 6,000 - $ 3,000).
- The cash provided by (used in) investing activities in 2020 is therefore ($ 45,000 - $ 9,000) = $ 36,000. However, the company's cash balance decreased by $ 90,000 during the year, indicating that cash was used in investing activities as well as other activities. The cash used in investing activities is therefore ($ 90,000 - $ 36,000) = $ 54,000.

Use the Following Information for Questions 18-19