Rainbow Corporation purchased land for $360,000. Later in the year, the company sold a different piece of land with a book value

Rainbow Corporation purchased land for $360,000. Later in the year, the company sold a different piece of land with a book value of $180,000 for $120,000. How are the effects of these transactions reported on the statement of cash flows?


Answer:











The loss on the sale of land is added to net income in the Operating Activities section.
Loss on sale of land……………………………………….…………………………… $ 60,000
The purchase and sale of land is reported as part of cash flows from investing
activities as shown below.
Cash received from sale of land…………………...………………………………… 120,000
Cash paid for purchase of land……………………………...………………………… (360,000)

A machine with a book value of $126,000 has an estimated six-year life. A proposal is offered to sell the old machine for $98,000

A machine with a book value of $126,000 has an estimated six-year life. A proposal is offered to sell the old machine for $98,000 and replace it with a new machine at a cost of $155,000. The new machine has a six-year life with no residual value. The new machine would reduce annual direct labor costs from $68,000 to $58,000. Prepare a differential analysis dated February 18, 2014, on whether to continue with the old machine (Alternative 1) or replace the old machine (Alternative 2).

Answer:


Differential Analysis 
Continue with Old Machine (Alt. 1) or Replace Old Machine (Alt. 2) 
February 18, 2014 
 Continue with 
Old Machine 
(Alternative 1) 
Revenues:    
Proceeds from sale of old machine $ 0 $  98,000 $  98,000 
Costs:    
Purchase price 0 –155,000 –155,000 
Direct labor (6 years) –408,000I
ncome (Loss) –$408,000 –$405,000 $ 3,000 
    
1 
$68,000 × 6 years 
2 
$58,000 × 6 years 
The company should replace the old machine.