An Analysis of Changes in Selected Statement of Financial Position

question 30

Multiple Choice

An analysis of changes in selected statement of financial position accounts of Hierarchy Corporation shows the following for the current year:
$\begin{array} { | c | l | } \hline \text { Property, Plant, and Equipment accounts: } & \\\hline \text { Debit entries to asset accounts } & \$ 504,000 \\\hline \text { Credit entries to asset accounts } & \$ 768,000 \\\hline \begin{array} { c } \text { Debit entries to accumulated depreciation accounts } \\\text { (resulting from sale of PPE assets) }\end{array} & \$ 72,000 \\\hline \begin{array} { c } \text { Credit entries to accumulated depreciation accounts } \\\text { (representing depreciation for the current year) }\end{array} & \$ 192,000 \\\hline\end{array}$ Hierarchy's income statement for the current year includes a $9,600 gain on disposal of property, plant, and equipment. All payments and proceeds relating to purchase or sale of property, plant, and equipment were in cash.

-How should purchases, sales, and depreciation of property, plant, and equipment be classified in Hierarchy's statement of cash flows for the current year? (Assume the direct method is used in Hierarchy.)

• A) Purchases of property, plant, and equipment are classified as operating activities; sales of property, plant, and equipment are classified as financing activities; depreciation is classified as an operating activity.
• B) Purchases of property, plant, and equipment and depreciation are classified as investing activities; sales of property, plant, and equipment are classified as operating activities.
• C) Purchases and sales of property, plant, and equipment are classified as investing activities; depreciation does not appear as an operating, financing, or investing activity.
• D) Since property, plant, and equipment are used to generate income from operations, purchases, sales, and depreciation of property, plant, and equipment are all classified as operating activities.

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Definitions:

Upward Counterfactuals

Hypothetical scenarios that individuals imagine which are better than what actually happened, often used in reflecting on past events.

Downward Counterfactual

Thinking about how a situation could have been worse, often leading to feelings of relief or contentment.

Upward Counterfactual

An imagined alternative in which the outcome is better than what actually happened.

Misinformation Effect

The phenomenon where people's memories of an event can be influenced by incorrect information presented after the event, leading to false recollections.