On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be
A) deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
B) added to net income in converting the net income reported on the income statement to cash flows from operating activities
C) added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
D) deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends

Question

Quizplus · Accepted Answer

Gains on the sale of investments are added back to net income on the income statement when using the indirect method to prepare the statement of cash flows. Since the gain increases net income but does not involve cash inflow from operating activities, it is deducted to arrive at the cash flows from operating activities.

On the Statement of Cash Flows Prepared by the Indirect