A corporation uses the indirect method for preparing the Statement of Cash Flows. A fixed asset has been sold for $25,000 representing a gain of $4,500. The value in the operating activities section regarding this event would be:
A) $25,000
B) ($4,500)
C) $29,500
D) $4,500

Question

Quizplus · Accepted Answer

The gain on the sale of the fixed asset is a non-cash item and therefore should be deducted from net income in the operating activities section. The value to be shown in the operating activities section would be the proceeds from the sale of the fixed asset, which is $25,000, and the gain on the sale of the fixed asset, which is a deduction of $4,500. Therefore, the net value to be shown in the operating activities section would be $20,500 ($25,000 - $4,500 = $20,500). Option B represents this deduction of $4,500.

A Corporation Uses the Indirect Method for Preparing the Statement