Income Statement and Cash Flow Analysis: Understanding Company Financials
How does a company report the sale of a delivery truck?
The given data states that a company sold a delivery truck for $3200, originally costing $40000 and with a book value of $4000. What is the correct reporting of the respective amounts?
a. $3200 as an investing cash flow on the statement of cash flows, and $800 as a loss on the income statement
b. $4000 as an investing cash flow on the statement of cash flows, and $3200 as a gain on the income statement
c. $800 as an investing cash flow on the statement of cash flows, and $3200 as a gain on the income statement
d. $3200 as an operating cash flow on the statement of cash flows, and $40000 as a loss on the income statement
Answer:
The correct reporting of the sale of the delivery truck by the company is as follows:
$3200 as an Investing cash flow on the statement of cash flows and $800 as a loss on the income statement
An income statement provides a summary of a company's financial performance over a specific period. It details the revenue earned, expenses incurred, and the resulting profitability. In the case of selling a delivery truck, the company would report the sale proceeds as an investing cash flow in the statement of cash flows.
The loss on the sale of the truck, calculated as the book value minus the sale proceeds, would be recognized in the income statement. This loss indicates the decrease in value of the asset compared to its original cost, resulting in a negative impact on the company's overall financial position.
Understanding how different transactions are reflected in the income statement and cash flow statement is crucial for assessing a company's financial health and making informed decisions. By accurately reporting the sale of assets like the delivery truck, stakeholders can have a clearer picture of the company's operations and profitability.