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A company sold PP&E for $200. Prior to the sale, the net book value of the PP&E on the financial...

Question:

A company sold PP&E for {eq}\$200 {/eq}. Prior to the sale, the net book value of the PP&E on the financial statements was {eq}\$240 {/eq}. Thus the company recorded a loss on sale of equipment of {eq}\$40 {/eq} in net income. What is the operating cash flow in this transaction?

Cash Flow from Operations

Cash Flow from Operating Activities is one of three sections of a company's overall Cash Flow Statement, along with Cash Flow from Investing Activities and Cash Flow from Financing Activities. It is an important measure of the success of a company's core business operations.

Answer and Explanation:

Sales of fixed assets are considered part of investing activities, not operating activities, so the PP&E sale would not effect operating cash flow.

From a procedural standpoint, since the loss on the sale of the equipment reduced net income by $40, that amount would need to be added back to the net income when calculating operating cash flow using the indirect method.


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
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