A company uses the indirect method to prepare the statement of cash flows.It sold a piece of equipment at a gain of $3,600.The equipment was purchased several years ago for $70,500 and had accumulated depreciation of $52,900.What is reported under the operating activities section on the statement of cash flows?
A)Cash proceeds of $21,200 are subtracted from net income.
B)Cash proceeds of $21,200 are added to net income.
C)The gain of $3,600 is added to net income.
D)The gain of $3,600 is subtracted from net income.

Question

Quizplus · Accepted Answer

Under the indirect method, gains on the sale of assets are subtracted from net income because they are not a part of operating activities. Therefore, the gain of $3,600 is subtracted from net income in the operating activities section on the statement of cash flows. The cash proceeds of $21,200 would be reported in the investing activities section as a cash inflow from the sale of the equipment.

A Company Uses the Indirect Method to Prepare the Statement