Black Corporation entered into the following transactions: • The accrual of wages and salaries expense.
• The cash sale of equipment for a loss.
• The cash payment in advance for a one-year insurance policy.
Which of the following statements is correct with respect to determining Black's cash flows from operating activities on the statement of cash flows?
A)The accrual of wages and salaries expense resulted in a cash outflow.
B)The purchase of a one-year insurance policy resulted in a cash inflow.
C)The cash sale of equipment for a loss resulted in a cash inflow.
D)The accrual of wages and the equipment loss both resulted in cash outflows.

Question

Quizplus · Accepted Answer

The cash sale of equipment, even at a loss, results in a cash inflow because cash is received from the sale. The other options either do not affect cash flows from operating activities directly (such as the purchase of an insurance policy, which is an investing activity) or are incorrectly stated regarding the direction of cash flow (such as the accrual of wages, which does not represent a cash flow until the wages are actually paid).

Black Corporation Entered into the Following Transactions: • the Accrual