If an analysis of the general ledger accounts indicates that equipment, which had cost $168,000
and on which accumulated depreciation totaled $135,000 on the October 1st was sold for
$20,000. During 2009 the depreciation on the equipment was $30,000.
How will the above items be shown (operating, financing, investing) on the statement of cash
flows and are they added or subtracting in the statement of cash flows?
Solution
1) $30,000 will be added to Cash flow from operating activities because of the current year
depreciation amount. As depreciation is a non-cash charge we will add it back to net income.
2) $20,000 will be added to Cash flows from investing activities as it generated cash inflows
from the sale of the equipment.
3) $17,000 will be deducted from Cash flow from operating activities on account of gain from
sale of equipment. Gain on sale of equipment = Cost of equipment