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NEW QUESTION: 1
MacDonald Inc. reported net income of $300,000 for 1996. Changes occurred in several balance sheet accounts as follows:
Equipment $25,000 increase
Accumulated depreciation 40,000 increase
Note payable 30,000 increase
Additional information:
During 1996, MacDonald sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000.
In December 1996, MacDonald purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000.
Depreciation expense for the year was $52,000.
In MacDonald's 1996 statement of cash flows, net cash used in investing activities is ________.
A. $18,000
B. $20,000
C. $12,000
D. $2,000
E. $32,000
Answer: D
Explanation:
Explanation/Reference:
Explanation:
The purchase and sale of equipment are investing activities. The firm spent $20,000 cash to buy equipment and received $18,000 cash (net book value was $13,000 plus $5,000 gain) by selling its old equipment. Therefore, the net cash used in investing is $2,000. The issuance of a note payable is part of the acquisition price of equipment and is classified as a noncash financing and investing activity.

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