CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

At the end of the year, a company sold equipment for $30,000 cash. The company paid $110,000 for the equipment several years ago and had recorded accumulated depreciation of $70,000 at the time of its sale. All other factors remaining equal, the equipment sale will result in the company's cash flow from ______.
A. investing activities increasing by $30,000.
B. operating activities being $10,000 less than net income.
C. investing activities decreasing by $10,000.
Explanation: The book value of the equipment at the time of sale is $110,000 - $70,000 = $40,000. The proceeds are $30,000; therefore, a loss of $10,000 is reported on the income statement. The loss reduces net income, but it is a non-cash amount, so it is added back to net income in the calculation of the cash from operations. Therefore, cash from operations is higher than net income, not lower. The total amount of the proceeds, $30,000, is the cash inflow from the transaction and is shown as a cash inflow from investing activities.

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