Answer (D) is correct . Investing activities include making and collecting loans and acquiring and disposing of debt or equity instruments and property, plant, and equipment and other productive assets, that is, assets held for or used in the production of goods or services (other than the materials held in inventory). Thus, the cash effects of purchases and sales of equipment should be reported in the investing cash flows section of the statement of cash flows. Moreover, cash inflows and outflows ordinarily are not netted. They should be reported separately at gross amounts. Accordingly, Beck should report a cash inflow of $15,000 ($10,000 carrying value + $5,000 gain) for the sale of equipment and a $47,000 outflow for the purchase. In adjusting accrual-based net income to net operating cash flow, the $5,000 gain on the sale of equipment should be subtracted to prevent double counting.
Answer (A) is incorrect because Cash inflows and outflows ordinarily are not netted.
Answer (B) is incorrect because An outflow of $42,000 assumes netting and a $5,000 inflow.
Answer (C) is incorrect because The cash inflow was $15,000. Beck received the $10,000 carrying value and a $5,000 gain.
|
