CMA Part 1: Cash Inflow & Outflow from Operating Activities

CMA Exam Questions - cash inflow and outflow from operating activities

Student Question


I have another question on cash flow from operations. I’m confused on how they arrived at their calculation of depreciation. I would have that depreciation would result in an inflow of $13,000 not $20,000. Or is it because they are also including the old equipment in the equation? I thought that the old equipment was already included in the accumulated depreciation. Thanks!”

– Brian

MCQ – Cash Inflow from Operating Activities

Madden Corporation’s controller has gathered the following information as a basis for preparing the Statement of Cash Flows. Net income for the current year was $82,000. During the year, old equipment with a cost of $60,000 and a net carrying value of $53,000 was sold for cash at a gain of $10,000. New equipment was purchased for $100,000. Shown below are selected closing balances for last year and the current year.

Last Year Current Year
Cash $39,000 $85,000
Accounts receivable net 43,000 37,000
Inventories 93,000 105,000
Equipment 360,000 400,000
Accumulated depreciation – equipment 70,000 83,000
Accounts payable 22,000 19,000
Notes payable 100,000 100,000
Common stock 250,000 250,000
Retained earnings 93,000 175,000

Madden’s cash inflow from operating activities for the current year is:

A. $63,000
B. $73,000
C. $83,000 (Correct Answer)
D. $93,000

Correct answer: (C) Madden’s cash inflow from operating activities for the current year is $83,000.

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The depreciation expense will be computed as:

Accumulated Depreciation 70,000
Add: Depreciation Expense for the Period xxx ?
Less: Accumulated Depreciation of the Sold Asset 7,000 ($60,000 – $53,000)
Accumulated Depreciation, Ending 83,000

Squeezing out the formula, we will get depreciation expense for the period as:

Accumulated Depreciation, Ending 83,000
Add: Accumulated Depeciaton of the Sold Asset 7,000
Less: Beginning Inventory

Note that the entry for the sale of the old equipment is as follows:

Cash 63,000
Accumulated Depreciation 7,000
Equipment 60,000
Gain on Sale of Equipment 10,000

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Above is an example of a mini-lesson that helped my student, Brian, understand how to deduct cash inflow from operating activities.

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Until our next lesson,


Nathan Liao

Hi, I’m Nathan Liao (aka the CMA Coach)! For the last 10 years, over 82,000 accounting and finance pros came knocking at my door seeking guidance and help. If you’re also aiming to conquer the CMA exam on your very first try—without wasting away time or money—you’ve found your ultimate guide. Dive in deeper to discover more about me and the dedicated team that powers CMA Exam Academy. Click here and let’s embark on this journey together!

2 Comments on “CMA Part 1: Cash Inflow & Outflow from Operating Activities”

  1. Hi Nathan, the answer 83000 was actually refer to current year accumulated depreciation-equipment?

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