A machine with a cost of $130,000, current year depreciation expense of $17,000 and accumulated depreciation of $85,000 is sold for $40,000 cash. The total amount that should be reported in the operating section of the statement of cash flow as per indirect method is:

Question

Business

Boris

25 July, 20:15

A machine with a cost of $130,000, current year depreciation expense of $17,000 and accumulated depreciation of $85,000 is sold for $40,000 cash. The total amount that should be reported in the operating section of the statement of cash flow as per indirect method is:

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Kelton Morrison · Answer 1

The total amount that should be reported in the operating section of the statement of cash flow as per the indirect method is $22,000

Explanation:

Under operating activities, we record the items with respect to changes in working capital, loss in the value of the fixed assets, depreciation, etc.

In the given question, it is mentioned that the machine cost is $130,000, the current depreciation expense is $17,000, accumulated depreciation of $85,000, and the machinery is sold for $40,000 in cash.

By using this above information, first, we have to compute the gain or loss in the selling of a machine

The computation is shown below:

= Purchase cost - accumulated depreciation

= $130,000 - $85,000

= $45,000

And, the sale of a machine is done for $40,000

So, the company incurred a loss of $5,000 ($40,000 - $45,000)

So, the total amount which is recorded under operating activity is

= Current year depreciation + loss in the sale of a machine

= $17,000 + $5,000

= $22,000

Hence, the total amount that should be reported in the operating section of the statement of cash flow as per the indirect method is $22,000