Question

Sonesta Farm Equipment Company sold equipment for cash. The income statement shows a loss on the sale of $9,000. The net book value of the asset was $30,900. Which of the following statements describes the cash effect of the transaction?

A.positive cash flow of $39,900 from financing activities
B.negative cash flow of $21,900 for operating activities
C.negative cash flow of $21,900 for financing activities
D.positive cash flow of $21,900 from investing activitie

Answer 1

D) positive cash flow of $21,900 from investing activities

Step-by-step explanation:

To calculate Sonesta's cash flow associated to this transaction we can use the following formula:

cash flow = net book value of the asset - loss on sale of the asset

cash flow = $30,900 - $9,000 = $21,900

The cash flow was generated by an investing activity since Sonesta sold an asset, not its products.