How to Compute Investing Cash Flows Equipment with a book value of $50,000 was sold for $70,000 (original purchase cost of $90,000). New equipment was purchased. Exhibit 14.2 showed the following information on investing transactions for Lemmons Company:

Question

How to Compute Investing Cash Flows

Equipment with a book value of $50,000 was sold for $70,000 (original purchase cost of $90,000). New equipment was purchased. Exhibit 14.2 showed the following information on investing transactions for Lemmons Company:

			Net Changes
Long-Term Assets	20X1	20X2	Debit	Credit
Plant and equipment	$ 400,000	$ 410,000	$10,000
Accumulated depreciation	(200000	210,000)		$10,000
Land	200,000	287,500	87,500

Required:
Calculate the investing cash flows.

Accepted Answer

Sale of equipment $ 70,000 [latex]a[/latex]
Purchase of equipment (100,000) [latex]b[/latex]
Purchase of land (87,500) [latex]c[/latex]
Net cash from investing activities $(117,500)

[latex]a[/latex]The sale of long-term assets is an investing activity. Thus, the receipt of the $70,000 should be reported in the investing section.
[latex]b[/latex]There is no explicit information concerning the purchase price of equipment. The purchase price is inferred from the comparative balance sheet information as well as the information about the equipment originally costing $90,000 that was sold and removed from the books. The purchase price of the new equipment can be computed by the following procedure:
Beginning plant and equipment $400,000
Purchase of equipment ?
Sale of equipment (90,000)
Ending balance, plant, and equipment $410,000
The “plug figure” for the equipment purchase must be $100,000. (Note: $40,000 of accumulated depreciation was deducted from the books, removing the accumulated depreciation associated with the equipment that was sold, and $50,000 was added to reflect the depreciation expense for 20X2, giving a net increase of $10,000.)
[latex]c[/latex] The comparative balance sheets reveal that land was purchased for $87,500. This transaction also should appear in the investing section

Question 14.4: How to Compute Investing Cash Flows Equipment with a book va...

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