Financial Accounting: An Integrated Statements Approach, 2nd Edition

The purchase of a building for cash of $60,000 is reported as an outflow of cash in

the investing activities section, as follows:

Cash flows from investing activities:

Cash paid for purchase of building $60,000

The credit in the accumulated depreciation—building account, shown earlier,

represents depreciation expense for the year. This depreciation expense of $7,000 on

the building has already been considered as an addition to net income in determining

cash flows from operating activities, as reported in Exhibit 5.

Land

The $45,000 decline in the land account resulted from two separate transactions, as

shown below.

The first transaction is the sale of land with a cost of $60,000 for $72,000 in cash.

The $72,000 proceeds from the sale are reported in the investing activities section, as

follows:

Cash flows from investing activities:

Cash received from sale of land (includes

$12,000 gain reported in net income) $72,000

The proceeds of $72,000 include the $12,000 gain on the sale of land and the $60,000

cost (book value) of the land. As shown in Exhibit 5, the $12,000 gain is also deducted

from net income in the cash flows from operating activities section. This is necessary

so that the $12,000 cash inflow related to the gain is not included twice as a cash

inflow.

The second transaction is the purchase of land for cash of $15,000. This transaction

is reported as an outflow of cash in the investing activities section, as follows:

Cash flows from investing activities:

Cash paid for purchase of land $15,000

590 Chapter 13 Statement of Cash Flows

BUILDING

Jan. 1 Balance 200,000

Dec. 27 Purchased for cash 60,000

Dec. 31 Balance 260,000

ACCUMULATED DEPRECIATION—BUILDING

Jan. 1 Balance 58,300

Dec. 31 Depreciation for year 7,000

Dec. 31 Balance 65,300

LAND

Jan. 1 Balance 125,000 June 8 Sold for $72,000 cash 60,000

Oct. 12 Purchased for cash 15,000

140,000

Dec. 31 Balance 80,000

Q.A building with a cost

of $145,000 and accumu-

lated depreciation of

$35,000 was sold for a

$10,000 gain. How much

cash was generated from

this investing activity?

A.$120,000

($145,000$35,000

$10,000)