In the same distress sale example, how does cash on the cash flow statement change?

In the same distress sale example, how does cash on the cash flow statement change?

• A. Cash decreases by $88.
• B. Cash unchanged.
• C. Cash increases by $88.
• D. Cash increases by $12.

Answer: (C)

The cash flow statement mirrors actual cash movements, not accounting profits. When you sell an asset in distress, you still receive cash equal to the sale price, and that inflow shows up in the investing activities section. Here, the asset sale brings in 88 dollars, so cash increases by 88. The sale may also generate a loss on the income statement (for example, if the asset’s book value exceeds the sale price), but that loss is a noncash or accounting result that affects net income and gets adjusted when computing operating cash flow, while the cash received from the sale remains an 88 dollar inflow. The other options would imply cash being reduced, unchanged, or only a 12 dollar change, which doesn’t reflect the actual cash received from the sale.

The cash flow statement mirrors actual cash movements, not accounting profits. When you sell an asset in distress, you still receive cash equal to the sale price, and that inflow shows up in the investing activities section. Here, the asset sale brings in 88 dollars, so cash increases by 88. The sale may also generate a loss on the income statement (for example, if the asset’s book value exceeds the sale price), but that loss is a noncash or accounting result that affects net income and gets adjusted when computing operating cash flow, while the cash received from the sale remains an 88 dollar inflow. The other options would imply cash being reduced, unchanged, or only a 12 dollar change, which doesn’t reflect the actual cash received from the sale.