Under the indirect method of preparing the statement of cash flows,a gain on the sale of equipment is:
A)subtracted from net income in the operating activities section.
B)added to net income in the operating activities section.
C)subtracted from the book value of the equipment in the financing activities section.
D)ignored since this transaction does not affect cash.

Question

Quizplus · Accepted Answer

Under the indirect method, gains and losses are adjusted for in the operating activities section. A gain on the sale of equipment would increase net income, but it is not a cash transaction, so it must be subtracted from net income to arrive at the cash provided by operating activities.

Under the Indirect Method of Preparing the Statement of Cash