Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Loss on Disposal of Equipment-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.

Question

Quizplus · Accepted Answer

The loss on disposal of equipment is a non-cash expense that reduced net income. When using the indirect method for calculating net cash flows from operating activities, this loss is added back to net income because it does not involve an outflow of cash during the period.

Assume the Indirect Method Is Used to Compute Net Cash