A company uses the indirect method to prepare the statement of cash flows. It sold a piece of equipment at a gain of $5600. The equipment was purchased several years ago for $75,500 and had accumulated depreciation of $58,900. What is reported under the operating activities section on the statement of cash flows?
A)Cash proceeds of $22,200 are subtracted from net income.
B)Cash proceeds of $22,200 are added to net income.
C)The gain of $5600 is added to net income.
D)The gain of $5600 is subtracted from net income.

Question

Quizplus · Accepted Answer

Under the indirect method, the gain on the sale of equipment is subtracted from net income because it is a non-operating activity. Therefore, the gain of $5600 is subtracted from net income. The cash proceeds of $22,200 are reported in the investing activities section, as it represents the cash inflow from the sale of equipment.

A Company Uses the Indirect Method to Prepare the Statement