Purchase and Disposal of Operating Asset and Effects on Statement of Cash Flows On January 1, 2010, Mansfield Inc. purchased a medium-sized delivery truck for $45,000. Using an estimated useful life of five years and a residual value of $5,000, the annual straight-line depreciation of the trucks was calculated to be $8,000. Mansfield used the truck during 2010 and 2011, but then decided to purchase a larger delivery truck. On December 31, 2011, Mansfield sold the delivery truck at a loss of $12,000 and purchased a new, larger delivery truck for $80,000.

1. How would the previous transactions be presented on Mansfield’s statements of cash flows for the years ended December 31, 2010 and 2011?
2. Why would Mansfield sell at a loss a truck that had a remaining useful life of three years and purchase a new truck with a cost almost twice that of the old?

  • CreatedJanuary 12, 2012
  • Files Included
Post your question