Response to the following problem:
Assume the following income statement information:
Sales (all cash) $35
Operating expenses
Depreciation 10
Income before other item 25
Other item
Gain on sale of equipment 8
Net income $33
Required:
1. Assume the equipment originally cost $20, had a carrying amount of $4 at the date of disposal and was sold for $12. Prepare the journal entry to record the disposal. What is the cash effect of this entry?
2. Calculate cash flow from operating activities.