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RD, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 8784
Experience:  MBA, CPA
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Tim Co. sold a piece of old equipment for $6200. This equipment

Customer Question

Tim Co. sold a piece of old equipment for $6200. This equipment was purchased by the Tim Company for $12,000 and depreciated for 4 years at $1200 annually. How much amount should be added or deducted from Net Income to compute the cash flows from operating activities.
a. add $5,800
b. deduct 5,800
c. add 1000
d. add 6,200
Submitted: 5 years ago.
Category: Finance
Expert:  RD replied 5 years ago.

RD :

The answer will be c add 1000

RD :

Presuming there is no depreciation deducted in the year of sale- the adjusted basis is $12000-$4800(depreciation for 4 years) which is $7200. The sale price is $6200 so the loss on sale is $1000 which is deducted on P&L and hence should be added back to determine cash flows from operating.

RD :

Alternatively, presuming that $1200 depreciation is claimed for the current year and last 4 years - adjusted basis is $6000 and with sale price being $6200 - gain on sale is $200. At the same time depreciation of $1200 has to be added back. Hence net amount of $1000 will have to be added.

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Customer: replied 5 years ago.

excellent job.