Question

IZ Corporation purchased land for $400,000. Later in the year, the company sold a different piece of land with a book value of $200,000 for $240,000. How are the effects of these transactions reported on the statement of cash flows assuming the indirect method is used? Use the minus sign to indicate cash out flows, cash payments, decreases in cash and for any adjustments, if required. If a transaction has no effect on the statement of cash flows, select "No effect" from the drop down menu and leave the amount box blank.

Answer 1

Answer and Explanation:

1. Gain on sale of land

It is come from

= Sale value - book value

= $240,000 - $200,000

= $40,000

Since there is a gain of $40,000 which is to be deducted from a net income under the cash flow from operations

2. Cash received from sale of land

The cash is received from sale of land reflects that the cash is come i.e inflow of cash and the same is to be reflected under the cash flow from investing activities in a positive amount i.e $240,000

3. Cash paid for purchase of land

The cash is paid for purchase of land reflects that the cash is gone i.e outflow of cash and the same is to be reflected under the cash flow from investing activities in a negative amount i.e -$400,000