Use the following information for questions 102 and 103.
A flood damaged a building and contents. Floods are unusual and infrequent in this area. The receipts from insurance companies totaled $500,000, which was $150,000 less than the book values. The tax rate is 30%.
-On the statement of cash flows (indirect method), the flood loss should
A) be shown as an addition to net income of $105,000.
B) be shown as an addition to net income of $150,000.
C) be shown as an inflow from investing activities of $105,000.
D) not be shown.

Question

Quizplus · Accepted Answer

The flood loss of $150,000, which is the difference between the book values and the insurance receipts, should be added back to net income in the operating activities section of the statement of cash flows when using the indirect method. This is because it is a non-cash expense that reduced net income.

Use the Following Information for Questions 102 and 103