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Garrett Company had the following activities for a recent year ended December 31: Sold land that cost $23,000 for $23,000 cash; purchased $174,000 of equipment, paying $155,000 in cash and signing a note payable for the rest; and recorded $6,300 in depreciation expense for the year. Net income for the year was $13,000. Prepare the operating and investing sections of a statement of cash flows for the year based on the data provided. (List cash outflows as negative amounts.)

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Answer:

Cash flow from Operating Activities

Net income for the year                           $13,000

Add Depreciation Expense                       $6,300

Net Cash from Operating Activities        $19,300

Cash flow from Investing Activities

Proceeds from Sale of Land                   $23,000

Purchase of Equipment                       - $155,000

Net Cash from Investing Activities      - $132,000

Explanation:

The operating cash flow can be prepared using the indirect method since the information provided allows so.

To this end, the Net income must be reconciled to the Cash flow from Operating Activities by taking into account, the non-cash items previously deducted or added to Net Income and any adjustment to changes in working capital that needs to be effected on the Net Income.

On the other hand, the Cash flow from Investing Activities is simply the movement in cash arising from Sale or Acquisition of items of Property, Plant and Equipment.

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