Answer:
Part 1
Cost of Equipment Sold = $9300
Accumulated Depreciation of Equipment Sold = $ 1100
Cash received from Sale = $5300
Part 2
<em>Net Cash Flows from Operating Activities</em>
Add Back (Positive) to Operating Profit for the year : Loss on sale of equipment $ 2900
Part 3
<em>Net Cash flows from Investing Activities</em>
Add (Positive) Proceeds from Sale of Equipment $ 5300
Explanation:
Part 1
<em>Cost of Equipment Sold:</em>
The figure is obtained from Equipment At Cost Account.
Open the Account as follows:
Beginning Balance $ 20300 (debit), Ending Equipment $ 11000, Balancing figure $ 9300 (20300-11000) is the cost of equipment sold.
<em>Accumulated Depreciation of Equipment Sold</em>
The figure is obtained from Accumulated Depreciation.
Open the Account as follows:
Beginning Balance $ 1980 (credit), Profit and loss - Depreciation $ 870 (credit), Ending Balance $ 1750 (debit), Balancing figure $ 1100 (1980+870-1750) is the Accumulated Depreciation on Equipment Sold
<em>Cash Received on Sale</em>
This figure is figure is obtained from Equipment Disposal Account.
Open the Account as follows:
Cost of Equipment Sold $ 9300 (debit), Accumulated depreciation on equipment sold $1100(credit),Loss on Sale of Equipment $2900(credit),the Balancing figure $5300 (9300-1100-2900)
Part 2
Loss on sale of Equipment is the only Income Statement Item affecting the Operating Activity of the Cash Flow Statement.
Add back to Operating profit since this is a non-cash item and was initially deducted in the calculation of Operating Profit.
Part 3
Sale of Equipment results in Cash Inflow and affects the Cash Flows from Investing Activities Section of Cash Flow Statement.
Hence a positive amount should be added to reflect this inflow.
