Question

Reporting Land Transactions on Statement of Cash Flows
On the basis of the details of the following fixed asset account, indicate the items to be reported on the statement of cash flows:
ACCOUNT Land ACCOUNT NO.
Balance
Date Item Debit Credit Debit Credit
Jan. 1 Balance 1,223,000
Mar. 12 Purchased for cash 404,000 1,627,000
Oct. 4 Sold for $222,000 190,000 1,437,000
Item Section of Statement of
Cash Flows Added or Deducted Amount
Mar. 12: Purchase of fixed asset Investing activities section Deducted $
Oct. 4: Sale of fixed asset Investing activities section Added $
Gain on sale of fixed asset (assume the indirect method) Operating activities section Deducted $

Answer 1

Answer: Please see below

Explanation:

Date Item                  Debit      Credit             Debit           Credit

Jan. 1 Balance                                                1,223,000

Mar. 12 Purchased

       for cash           404,000                         1,627,000

Oct. 4 Sold for

               $222,000                 190,000         1,437,000

           

           items       Section for statement     Added or     Amount        

                                    of Cash flows           Deducted

Mar. 12: Purchase

        of fixed asset      Investing activities     Deducted$404,000

Oct. 4: Sale of

        fixed asset          Investing activities         Added $222,000

Gain on sale of

fixed asset            Operating activities      Deducted      $32,000

(assume the indirect method)

Sale of asset - credit of 190,000

=$222,000 -$190,000= 32,000.

According to indirect method,The statement of cash flows involves adjusting  the net income  to changes in balance sheet accounts to determine  amount of cash accrued  by operating activities.

Cash flows In  the indirect method format follows the general classification of

-Cash flows from operating activities

-Cash flows from investing activities

-Cash flows from financing activities

Here, purchase of land would be an investing activity and would be deducted from net income.Sale of land would be an investing activity but added to net income and  a gain on asset would  be under operating activities and  deducted from net income