Hsu Corporation had a beginning balance of $6,000 in its Land account. During the year Hsu Corporation sold some of its land, reducing the balance in the Land account at the end of the year to $1,500. Hsu also recognized a $700 gain on the sale of land on its current year income statement. What is the effect of this sale on the company's statement of cash flows assuming that Hsu Corporation made no land purchases during the year?

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Business

Kason Evans

4 November, 15:28

Hsu Corporation had a beginning balance of $6,000 in its Land account. During the year Hsu Corporation sold some of its land, reducing the balance in the Land account at the end of the year to $1,500. Hsu also recognized a $700 gain on the sale of land on its current year income statement. What is the effect of this sale on the company's statement of cash flows assuming that Hsu Corporation made no land purchases during the year?

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Royce Baldwin · Answer 1

the gain on disposal of $700 is deducted from the net profit in the segment of cash flows from operating activities. the cash received of $5,200 is recognized as a cash inflow in the segment of the cash flows from Investing activities

Explanation:

Cost of land held at the start of the year = $6,000

Closing balance = $1,500

Cost of land sold = $6,000 - $1,500

= $4,500

Gain on sale = $700

Therefore, amount received on disposal = $4,500 + $700

= $5,200

The effect on of this sale on the company's statement of cash flows assuming that Hsu Corporation made no land purchases during the year is in two parts;

the gain on disposal of $700 is deducted from the net profit in the segment of cash flows from operating activities. the cash received of $5,200 is recognized as a cash inflow in the segment of the cash flows from Investing activities