Use the information below to answer the following three (3) questions: During 20
ID: 2438189 • Letter: U
Question
Use the information below to answer the following three (3) questions:
During 2005, XYZ Company sold equipment for $5,000. The equipment cost $20,000 and had accumulated depreciation of $12,000 at the time of sale.
1. The sale resulted in a:
a. Gain
b. Loss
2. The amount of the gain or loss is:
3. In a statement of cash flows presented using the indirect method:
a. $20,000 is added to the investing activities section
b. $20,000 is added to the operating activities section
c. $5,000 is added to the investing activities section
d. $5,000 is deducted from the investing activities section
e. None of the above
Explanation / Answer
Book value as on date of sale=($20000-$12000)=$8000
Hence since sale proceeds is lower than the book value at the time of sale;
1.The sale resulted in a Loss
2.Loss=(8000-5000)=$3000
3.The sale proceeds results in cash inflows in the investing section of the cash flow statement for the period.Hence the correct option is C.