What is the proper treatment of a loss on disposal of equipment when using the indirect method to complete the cash flows from operating activities section?
A) Disregard the loss because it relates to an investing activity.
B) Disregard the loss because it relates to a financing activity.
C) Add the loss to net income.
D) Subtract the loss from net income.

Question

Quizplus · Accepted Answer

When using the indirect method for the statement of cash flows, non-cash expenses and losses, such as a loss on disposal of equipment, are added back to net income in the operating activities section. This is because the loss reduces net income but does not involve an outflow of cash in the operating activities.

What Is the Proper Treatment of a Loss on Disposal