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In 2010, Palacio Corporation sold an automobile for $5,000. The automobile had a book value of $7,500 at the time of the sale.

-In its statement of cash flows prepared on the indirect method, Palacio
A) should show the $5,000 cash inflow as a component of cash flows from investing activities.
B) should show the $5,000 cash inflow as a component of cash flows from financing activities.
C) should show the $5,000 cash inflow as a component of cash flows from operating activities.
D) should show the $7,500 as a cash outflow from financing activities.
E) cannot determine how to show the $5,000 without knowing the original cost of the automobile.

Question

Use the following information to answer questions :
In 2010, Palacio Corporation sold an automobile for $5,000. The automobile had a book value of $7,500 at the time of the sale.

-In its statement of cash flows prepared on the indirect method, Palacio
A) should show the $5,000 cash inflow as a component of cash flows from investing activities.
B) should show the $5,000 cash inflow as a component of cash flows from financing activities.
C) should show the $5,000 cash inflow as a component of cash flows from operating activities.
D) should show the $7,500 as a cash outflow from financing activities.
E) cannot determine how to show the $5,000 without knowing the original cost of the automobile.

Quizplus · Accepted Answer

The sale of an automobile, which is a long-term asset, for cash is considered an investing activity. Therefore, the $5,000 cash inflow from the sale should be shown as a component of cash flows from investing activities in the statement of cash flows prepared using the indirect method.

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