Hernandez Company sold equipment for $50,000 cash. The equipment had originally cost $70,000 and...

Question:

Hernandez Company sold equipment for $50,000 cash. The equipment had originally cost $70,000 and had accumulated depreciation of $30,000.

Show how this transaction would be presented in the statement of cash flows on the indirect method statement of cash flows.

What Is Operating Cash Flow:

A company's Operating Cash Flow is presented at the very top of the cash flow statement. The Operating Cash Flow is known as the cash generated by the company's core operations (i.e. income) as well as through changes to its working capital.

Answer and Explanation:

There are two separate impacts on the cash flow statement:

1. The gain must be deducted from net income when computing operating cash flow.

The Gain is computed as follows:

=Proceeds + accumulated depreciation - cost

= 50,000 +30,000 -70,000

=$10,000

2. The proceeds of the disposal must be presented as an inflow for investing activities.

In this case, the proceeds are $50,000.


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
10K

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