Chapter 12, Problem 2MCQ

To determine

Cash Flow from Investing Activities:

Investing activity is the third part of the cash flow statement which gives the information related to the acquisition and disposal of the long term assets of the company such as land and building, investment and plant and machinery. The amount received and paid while carry out these activity are reported as the cash flow from investing activity.

To identify: The amount reported as the cash flow from investing activity.

Explanation:

‘Option c’ is correct.

Option c

Sale of machinery comes under the investing activity of the company because cash received from the long term assets come under the investing activity and $87,000 is the received from sale of the machinery. Thus, cash received will be reported as the cash flow from investing activities.

Option a

$81,000 will not come under the any activity because the amount comes after deducting the depreciation from the original cost of the machinery that is why it is wrong option.

Option b

$6,000 is the amount of gain from sale of machinery. Since the value of machinery after deducting the depreciation is $81,000 and selling price of the machinery is $87,000. Gain on selling of machinery is not investing activity and it will not be reported as the cash flow from investing activity.

Option d

Sale of machinery will not be treated as financial activity of the company because under the financial activity long term liability and debts comes

Option e

Sale of the machinery cannot be considered as the operating activity because it is not activity of daily routine of the company.

Hence, the ‘option c: $87,000’ is the correct answer.