# Sold asset on CFO and net income

A company purchased an asset 3 years ago for \$125,000. It sold the asset in the current year for \$12,000. The current year’s CFO exceeds net income by \$5,000. Assuming that these are the only transactions undertaken by the company and no depreciation was charged during the year, the accumulated depreciation charged against the asset is closest to:

\$108,000.
\$118,000.
\$17,000.

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I believe the answer is \$108,000.

Since CFO is greater than net income by \$5,000, and no other transactions that would affect CFO have taken place (including D&A), the only option left is a +\$5,000 adjustment from the loss on the sale of the asset. Since sales of assets are typically non-operating items, gains from asset sales are subtracted from NI and losses from asset sales are added when calculating CFO.

The loss of \$5,000 means the asset’s carrying value at the time of sale was \$17,000 (\$12,000 + \$5,000), where G/L from an asset sale = carrying value - sale price. Subtracting \$17,000 from \$125,000 is \$108,000.