Question

Please answer asap

Eeyore Inc. sold equipment for $4,100 cash. The equipment was purchased seven years ago at a cost of $32,000. The equipment had no estimated salvage value and was fully depreciated at the time of the sale.

What is the amount of the necessary adjustment (relating to this sale) to reconcile net income to net cash provided (used) by operating activities?

Answer 1

W.n 1) Calculation of Profit on Sale of the equipment

Particulars	Amount ($)
Cost of the equipment....(A)	$32,000
Less) Depreciation for 7 years....(B) (As given in question asset is fully depreciated over 7 years. So, it means that entire cost of equipment of $32,000 has been depreciated)	($32,000)
Book Value at the end of 7 years...(C)=(A)-(B)	Nil
Sale proceeds of the equipment....(D)	$4,100
Profit on sale of the equipment...(E)=(D)-(C)	$4,100

Adjustment (relating to Sale of equipment) to reconcile net income to net cash provided (used) by operating activities

Eeyore Inc
Partial Cash flow statement
Particulars	Amount ($)
Cash flow from Operating Activities
Net Income	Xxxxx
Adjustments
Less) Profit on Sale of Equipment (Non- Operating Income)	($4,100)
Net Cash Provided (used) by Operating activities	Xxxxx

Since the Profit arising on the sale of the equipment is a non operating income the same should be reduced from net income to arrive at net cash provided (used) by operating activities.