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A firm reports net income of $48,000, depreciation of $5,000, a $10,000 gain on sale of investments, and a $1,000 loss on sale of equipment. Adjusting only for these items (before working-capital changes), what subtotal results?
A$64,000
B$44,000
C$54,000
D$42,000
Answer & Solution
Correct answer: B. $44,000
1. Start with net income: $48,000.
2. Add back depreciation (non-cash): +$5,000 → $53,000.
3. Deduct the gain (non-operating): −$10,000 → $43,000.
4. Add back the loss (non-operating): +$1,000 → $44,000.
5. Trap: adding the gain and deducting the loss gives $64,000 (option B) — the signs are reversed.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.2.3 "Operating activities section (indirect method)", p.271_
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