In Calculating Cash Flows from Operating Activities Using the Indirect

question 2

Multiple Choice

In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is

• A) added to net income
• B) deducted from net income
• C) ignored because it does not affect cash
• D) reported supplementally as a noncash investing and financing activity

---

Definitions:

Fiscal Year

A 12-month period used for accounting purposes and planning by organizations, which may not align with the calendar year.

Ledger

A comprehensive collection of a company's financial transactions, divided into individual accounts, and recorded in a way that balances are always maintained across assets, liabilities, and equity.

Physical Inventory

The manual count of all merchandise or stock in a store or warehouse at a particular time.

Estimated Returns Inventory

A reserve of products anticipated to be returned by customers, accounting for potential future merchandise returns.