Question: Each of the following items must be considered in preparing a statement of cash flows for Blackwell Inc. for the year ended December 31, 2017. State where each item is to be shown in the statement, if at all.

1. Plant assets that had cost \(18,000 6½ years before and were being depreciated on a straight-line basis over 10 years with no estimated scrap value were sold for \)4,000.
2. During the year, 10,000 shares of common stock with a stated value of \(20 a share were issued for \)41 a share.
3. Uncollectible accounts receivable in the amount of \(22,000 were written off against Allowance for Doubtful Accounts.
4. The company sustained a net loss for the year of \)50,000. Depreciation amounted to \(22,000, and a gain of \)9,000 was realized on the sale of available-for-sale securities for $38,000 cash.

All the activities that are concerned with daily business operations are known as operating activities. It includes activities such as sales, production, and purchases.

1. The loss on the sale of plant assets of $2,300 will be added to the cash flow from the operating section.

2. The sale of the plant for $4,000 will be added to the cash flow from investing activities.

Working note:

$$\begin{gathered} Lossonsale=Salesprice-\left(Purchaseprice-Accumulateddepreciation\right) \\ =\$4,000-\left(\$18,000-\left(\frac{\$18,000}{10}\times 6.5\right)\right) \\ =\$4,000-\$6,300 \\ =(\$2,300) \end{gathered}$$

(b) Issue of common stock will be added to the cash flow from financing activities.

1. Writing of uncollectible accounts against the allowance account does not affect the cash position and therefore it will not be reported in the statement of cash flow.
2. Net loss will be reported in the cash flow from operations. Depreciation will be added to the cash flow from operation because it is a non-cash expense. The gain realized on available for sale securities will be deducted from the cash flow from operations.