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The net book value of a truck at the beginning of the year is $30,000. During the year, the company recorded depreciation expense of $10,000 before it sold the truck for $15,000 in cash. Which of the following will be found in the Statement of Cash Flows prepared using the Indirect Method?

 

$10,000 depreciation expense added back to Net Income in Operating Activities section;

$20,000 book value of the Truck listed as cost of PP&E sold in Investing Activities section;

Sales proceeds of $15,000 listed in Investing Activities section

 

$10,000 depreciation expense added back to Net Income in Operating Activities section;

$5,000 loss on sale added to Net Income in Operating Activities section;

Sales proceeds of $15,000 listed in Investing Activities section

 

$10,000 depreciation expense added back to Net Income in Operating Activities section;

$5,000 loss on sale subtracted from Net Income in Operating Activities section;

Sales proceeds of $15,000 listed in Operating Activities section

 

$10,000 depreciation expense added back to Net Income in Operating Activities section;

$5,000 loss on sale in Investing Activities section;

Sales proceeds of $20,000 listed in Investing Activities section

 
 

Correct answer. With the beginning balance of $30,000 and depreciation expense of $10,000, the balance in the truck before the sale is $20,000. Cash proceeds from the sale is $15,000, so the loss on sale is $5,000. Therefore, in the Investing activities section, $15,000 should be listed. In the Operating Activities section, under the indirect method, $5,000 of loss on sale should be added to Net Income as it is a non-operating item included in the Income Statement, and $10,000 of depreciation should be added back to Net Income as it is a non-cash item.

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