A company with substantial operating profits prepares its statement of cash flows using the indirect method.The gain on the sale of a long-term investment should be disclosed separately as a(n)
A) inflow from operating activities.
B) adjustment to net income in the reconciliation of net income to cash from operating activities.
C) inflow from investing activities.
D) outflow from investing activities.

Question

Quizplus · Accepted Answer

The gain on sale of a long-term investment is a non-operating item and hence should not be included in the cash flows from operating activities. It should be adjusted to the net income in the reconciliation of net income to cash from operating activities using the indirect method. Therefore, the gain should be disclosed separately as an adjustment to net income.

A Company with Substantial Operating Profits Prepares Its Statement of Cash