Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, 2016 for $16,000. Accumulated depreciation on the day of sale amounted to $32,000.

Based on this information, the sale would result in:

A. A $16,000 cash inflow in the investing activities section of the cash flow statement.

B. A $16,000 increase in total assets.

C. A $4,000 gain in the investing activities section of the statement of cash flows.

D. A $4,000 cash inflow in the financing activities section of the cash flow statement.

However, this gain is a non cash item as it is only reported on the books and there is no cash inflow or outflow that relates to this gain. Thus, option C and D become invalid as there is no cash related to this disposal gain as it is merely a book item.

A sale of asset doesnot increase but rather decrease total assets so option B become invalid. The correct answer is A as the asset is being sold for 16000 thus a cash inflow of 16000 is taking place.

Tundexi Tundexi · Answer 2 · 2021-12-14T11:05:34+01:00

Based on the information, the sale would result in $16,000 cash inflow in the investing activities section of the cash flow statement.

On the date of sale

Book value of asset = $44,000 - $32,000

Book value of asset = $ 12,000

From the sale of asset, there is cash (asset) inflow of $16,000. Hence, there is an increase in assets of $4,000 ($16,000 - $12,000).

Gain on sale is usually reported in operating section of cash flow statement.

Therefore, the Option A is correct because the Cash inflow from the sale will be reported under investing activities for the amount of $ 16,000

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