On September 1, 2006, Canary Co. sold used equipment for a cash amount equaling its carrying amount for both book and tax purposes. On September 15, 2006, Canary replaced the equipment by paying cash and signing a note payable for new equipment. The cash paid for the new equipment exceeded the cash received for the old equipment. How should these equipment transactions be reported in Canary’s 2006 statement of cash flows?

  1. Cash outflow equal to the cash paid less the cash received.
  2. Cash outflow equal to the cash paid and note payable less the cash received.
  3. Cash inflow equal to the cash received and a cash outflow equal to the cash paid and note payable.
  4. Cash inflow equal to the cash received and a cash outflow equal to the cash paid.