Asked by Shaylie Pickrell on Jun 14, 2024

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On the statement of cash flows prepared using the indirect method, a $7,500 gain on the sale of fixed assets would be

A) added to net income in converting the net income reported on the income statement to cash flows from operating activities
B) deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
C) added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
D) deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends

Net Income

The final amount a company earns after removing all outgoings and tax liabilities from its total income.

Indirect Method

A way of preparing a cash flow statement where net income is adjusted for changes in balance sheet accounts to reflect cash transactions.

Sale Of Fixed Assets

The process of selling long-term assets such as property, plant, and equipment for cash or other compensation.

  • Acquire knowledge of the indirect technique for ascertaining net cash flow from operating activities, taking into account adjustments to net income.
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OG
Ozeisha GrantJun 19, 2024
Final Answer :
B
Explanation :
The gain on the sale of fixed assets is a non-operating activity and should be accounted for in the cash flows from investing activities section of the statement of cash flows. It should be deducted from net income in converting the net income reported on the income statement to cash flows from operating activities since it is not cash generated by operating activities.