Question

Blue Co. sold plant assets costing $15,000 with accumulated depreciation of $10,000 for $7,000. As a result, Blue Co will report _____ on the statement of cash flows in the cash flows from investing activities section.

Answer 1

Answer:

an increase of $7,000 in the investing activities section

Explanation:

The book value of the assets is $5,000 (its cost minus accumulated depreciation of 15000-10000).

If the book value is $5,000 and it sells the assets at $7,000, it thus registered a gain of$2,000 (7000-5000)

They recognized a gain of $2,000. $7,000 - ($15,000 - $10,000) = $2,000. The gain will be subtracted from net income in the Operating Activities section. The receipt of cash of $7,000 will be reported as an increase in the Investing Activities section.

Answer 2

Answer:

Blue Co will report a loss of $18,000 on the statement of cash flows in the cash flows from investing activities section.

Explanation:

Step 1: Determine the total cost of the asset

The total cost can be expressed as;

T=A+D

where;

T=total cost of the asset

A=asset purchase cost

D=accumulated depreciation

In our case;

T=unknown

A=$15,000

D=$10,000

replacing;

T=15,000+10,000=$25,000

Total cost of the asset=$25,000

Step 2: Determine the cash flow after the sale

This can be expressed as;

Cash flow=selling price-total cost of the asset

where;

selling price=$7,000

total cost of the asset=$25,000

replacing;

Cash flow=7,000-25,000=-$18,000

Blue Co will report a loss of $18,000 on the statement of cash flows in the cash flows from investing activities section.