Atkins Corporation has provided the following information for the year ended December 31,2019: • The equipment account balance increased by $200,000 from the beginning of the year to the end of the year.
• The equipment accumulated depreciation account balance increased by $35,000 from the beginning of the year to the end of the year.
• Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
• Depreciation expense recorded on the equipment during the year was $65,000.
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Which of the following statements is incorrect with respect to preparation of the statement of cash flows? Assume that the equipment purchase and sale resulted in cash flows.
A)A $30,000 cash inflow is reported from the equipment sale.
B)Using the indirect method,net income is increased by the $65,000 depreciation expense.
C)Using the indirect method,net income is decreased by the $10,000 gain on the sale of the equipment.
D)A $60,000 cash inflow is reported from the equipment sale.

Question

Quizplus · Accepted Answer

The correct cash inflow from the equipment sale is calculated by subtracting the equipment's book value at the time of sale from the sale proceeds. The book value is the original cost minus accumulated depreciation. Given the gain of $10,000 on a sale of equipment costing $50,000, the cash inflow is actually $30,000 ($20,000 book value + $10,000 gain), not $60,000.

Atkins Corporation Has Provided the Following Information for the Year