Home › ACCA › Financial Accounting › Statement of Cash Flows › Under the indirect method, a gain on sale of inv…
Under the indirect method, a gain on sale of investments that is included in net income is treated how in the operating activities section?
ALeft unchanged in net income
BAdded to net income
CReported as a financing inflow
DDeducted from net income
Answer & Solution
Correct answer: D. Deducted from net income
1. Gains and losses on asset sales do not pertain to operating activities.
2. A gain increased net income, so to remove it from operating cash flow it is deducted.
3. The related cash appears in the investing section instead.
4. A loss would be added back; this is a gain, so it is deducted.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.2.3 "Operating activities section (indirect method)", p.271_
Related questions
Both the direct and indirect methods are used to prepare which part of the statement of caWages expense was $20,000. Beginning wages payable was $17,000 and ending was $14,000. UndInventory purchases for the year were $126,000. Beginning accounts payable was $22,000 andBeginning inventory was $80,000, ending inventory $112,000, and cost of merchandise sold $Sales were $174,000. Beginning accounts receivable was $58,000 and ending was $34,000. UndNet cash from operating activities is $46,000, from investing $28,000, and from financing Financing activities show: cash from issuing common stock $20,000; cash to redeem bonds $5A firm reports investing inflows of $99,000 (land) and $90,000 (investments) and an outflo