Question

Land costing $41,905 was sold for $87,674 cash. The gain on the sale was reported on the income statement as other income. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?

Select the correct answer.

$41,905

$129,579

$45,769

$87,674

Answer 1

Amount of Cash Flow that should be reported as an investing activity from the sale of land

$ 87,674

Cost of land S41905

Selling price $ 87,674

Gain on sale of land = 87,674 - 41905 = $ 45,769

$ 45,769 is deducted from the Income Statement while preparing Cash flow from Operating Activity.This is to avoid duplication of cash flow. And entire amount of sale value of land will be shown as Inflow from investing activity.

Note. Assuming the land was purchased not in the current year.

$ 41,905 is not the answer because no cash outflow was made for the purchase of land.

$ 1,29,579 is not the answer because the cash inflow is only $ 87,674 only

$ 45769 is not the answer because it is only the gain on sale of land only not cash flow on sale which is $ 87,674.

Note. If land purchased is the current year itself then cash flow is only $ 45769 as the sale value as inflow and buying cost as outflow (87,674 - 41905). But most probabily the land might not have been bought in the current year.

So the amount of cash flow of investing activity is $ 87674