Question: Purchase and Disposal of Operating Asset and Effects on Statement of

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.

Required
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?


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  • CreatedJanuary 12, 2012
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