An Analysis of Changes in Selected Statement of Financial Position

question 83

Multiple Choice

An analysis of changes in selected statement of financial position accounts of Johnson Company shows the following for the current year:
$\begin{array} { | l | l | } \hline \text { Property, Plant, and Equipment accounts: } & \\\hline \text { Debit entries to asset accounts } & \$ 160,000 \\\hline \text { Credit entries to asset accounts } & \$ 118,000 \\\hline \begin{array} { c } \text { Debit entries to accumulated depreciation accounts } \\\text { (resulting from sale of PPE assets) }\end{array} & \$ 91,000 \\\hline \begin{array} { c } \text { Credit entries to accumulated depreciation accounts } \\\text { (representing depreciation for the current year) }\end{array} & \$ 107,000 \\\hline\end{array}$ Johnson 's income statement for the current year includes a $14,000 loss 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 Johnson's statement of cash flows for the current year? (Assume the direct method is used in Johnson.)

• A) Purchases of property, plant, and equipment are classified as investing 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 financing 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.