Atkins Corporation Has Provided the Following Information for the Year

question 21

Multiple Choice

Atkins Corporation has provided the following information for the year ended December 31, 2016: • The equipment account balance increased by $200,000 from the beginning of the year to the end of the year.
• The equipment accumulated depreciation account balance increased by $35,000 from the beginning of the year to the end of the year.
• Equipment costing $50,000 was sold during the year resulting in a $10,000 gain.
• Depreciation expense recorded on the equipment during the year was $65,000.
Which of the following statements is incorrect with respect to preparation of the statement of cash flows? Assume that the equipment purchase and sale resulted in cash flows.

• A)A $30,000 cash inflow is reported from the equipment sale.
• B)Using the indirect method, net income is increased by the $65,000 depreciation expense.
• C)Using the indirect method, net income is decreased by the $10,000 gain on the sale of the equipment.
• D)A $60,000 cash inflow is reported from the equipment sale.

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Definitions:

Incremental Net Cash Flows

The difference in a company's cash flows when considering a proposed change, such as an investment or project.

Overhead Costs

Expenses not directly tied to product production, such as rent, utilities, and administrative salaries, essential for running a business.

Distribution Efficiencies

The optimization of processes and resources involved in distributing products or services from the producer to the consumer.

Cost of Equity

The cost of equity represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership.