Under the direct method of preparing a statement of cash flows, the gain on the sale of land is not adjusted or reported as part of cash flows from operating activities.

Question

Quizplus · Accepted Answer

In the direct method of preparing a statement of cash flows, the gain on the sale of land is not adjusted in the operating activities section because it is considered an investing activity, not an operating activity. Cash flows from the sale of land are reported in the investing activities section, and the gain itself is adjusted for in the reconciliation of net income to net cash provided by operating activities if the indirect method is used for the operating section.

Under the Direct Method of Preparing a Statement of Cash