The following item is found on the income statement of a corporation: Gain from sale of equipment, $5,000. The equipment sold during the year originally cost $20,000, had accumulated depreciation of $16,000 and was sold for cash. The Statement of Cash Flows should show an inflow of cash from investing activities of:
A) $1,000.
B) $4,000.
C) $5,000.
D) $9,000.

Question

Quizplus · Accepted Answer

The cash inflow from the sale of equipment is calculated by subtracting the book value of the equipment from the sale price. The book value is the original cost ($20,000) minus accumulated depreciation ($16,000), which equals $4,000. The equipment was sold for $5,000, resulting in a gain of $1,000, which is reported on the income statement. However, the actual cash inflow is the sale price of $5,000, not the gain. Therefore, the cash inflow from investing activities is the sale price of $5,000 plus the book value of $4,000, totaling $9,000.

The Following Item Is Found on the Income Statement of a Corporation