A building costing $550,000 with accumulated depreciation of $225,000 was sold for $275,000 cash.Which of the following statements is correct with respect to preparing the cash flow statement if the indirect method is being used?
A)$50,000 will be added to net income to determine cash flow from operating activities and $325,000 will be reported as a cash outflow in the investing activities section.
B)$50,000 will be deducted from net income to determine cash flow from operating activities and $275,000 will be reported as a cash inflow in the investing activities section.
C)$50,000 will be added to net income to determine cash flow from operating activities and $275,000 will be reported as a cash inflow in the investing activities section.
D)$275,000 will be added to net income to determine cash flow from operating activities and $325,000 will be reported as a cash outflow in the investing activities section.

Question

Quizplus · Accepted Answer

The correct answer is C because the loss on sale of the building ($50,000) is added back to net income in the operating activities section (since the building sold for $275,000 with a book value of $325,000 [$550,000 cost - $225,000 accumulated depreciation], resulting in a $50,000 loss). The cash received from the sale ($275,000) is reported as a cash inflow in the investing activities section.

A Building Costing $550,000 with Accumulated Depreciation of $225,000 Was