Question

Wisconsin Farm Equipment Company sold equipment for cash. The income statement shows a loss on the sale of $ 10 comma 000. The net book value of the asset was $ 30 comma 900. Which of the following statements describes the cash effect of the​ transaction? A. positive cash flow of $ 20 comma 900 from investing activities B. positive cash flow of $ 40 comma 900 from financing activities C. negative cash flow of $ 20 comma 900 for operating activities D. negative cash flow of $ 20 comma 900 for financing activities

Answer 1

Answer:

A. positive cash flow of $ 20 comma 900 from investing activities

Explanation:

book value - sales price = loss on sale

30,900 - sales price = 10,000

30,900 - 10,000 = sales price

sales price = 20,900

Assumming the purchase was on cash, it will be disclosure as cash generated from investing activities for 20,900

The reason is that cashflow do not focus on the gain or loss from the sale. It focus on the cash movements and this sale involve a cashinflow of 20,900