Question

A company has a piece of land that cost $40,000. It was sold during the year for $50,000. How will this impact the Statement of Cash Flows prepared on the INDIRECT approach: The operating Section will decrease 40,000; The Financing section will increase $50,000. The operating section will show a PLUS adjustment for $10,000; The Investing section will show a $50,000 INFLOW. The operating section will show a MINUS adjustment for $10,000; The Investing section will show an INFLOW of $50,000. The operating section will show a MINUS adjustment for $10,000; The Financing section will show an INFLOW OF $50,000. NONE OF THESE

Answer 1

Solution for question 48-

Given- Cost Price of land = $ 40,000

Selling Price of land = $ 50,000

To find- Impact on Cash Flow

Answer- Option 3

Explanation- Profit = Selling Price - Cost Price

= 50,000-40,000

= $ 10,000

Gain on sale of an asset goes into operating section of cash flow. We deduct the amount of profit ( $ 10,000) on sale in operating section.

$50,000 amount will go into Investment section to add as proceeds on sale of an asset to retire the asset.

Note- Other options are incorrect as sale of land doesn’t go into finance section and profit amount is $ 10,000. Amount $ 50,000 is inflow in investment.

Answer of question 49-

Option 2

Explanation- Increase in inventory means purchasing of inventory. To purchase anything we have to pay. So cash outflows that is why increase in inventory will be deducted in operating section.

* Other options are incorrect because increased inventory is not related with investment section as well as finance section and not an inflow of cash.

Solution of question 51-

Answer - Option 2

Explanation - Steps if accounting cycle are-

1- Journalize

2- Post into ledger

3- Unadjusted Trial Balance

4- Adjusted Entries

5- Adjusted Trial Balance

6- Financial Statements

7- Close

8- Reverse

So Option 2 is correct and other options are incorrect.

Solution of question 50-

Answer- Formula

Cash flow from operating section = Net Income + Depreciation +Increase in Accounts Payable + Decrease in Inventory- Increase in Accounts Receivable- Increase in Interest Payable

123,000 = Net Income + 38,000 + 48,000+ 27,000- 31,000-12,000

123,000= Net Income + 70,000

Net income = 123,000- 70,000

=53,000

So answer is $ 53,000