In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is
A) added to net income.
B) deducted from net income.
C) ignored because it does not affect cash.
D) reported separately as a non-cash investing and financing activity

Question

Quizplus · Accepted Answer

A gain on the sale of equipment represents a non-operating item, and is therefore deducted from net income when calculating cash flows from operating activities using the indirect method. This is because the gain represents an increase in net income that did not involve a corresponding increase in cash received, so it must be removed to arrive at the true cash flows from operating activities.

In Calculating Cash Flows from Operating Activities Using the Indirect