A Company Sold an Investment in Trading Securities Originally Costing

question 3

Multiple Choice

A company sold an investment in trading securities originally costing $30,000,for $28,000.At the beginning of the year,the investment had a valuation allowance of $3,000,debit.What is the correct disclosure for these events on the statement of cash flows prepared under the direct method,assuming that this is the only investment in trading securities?

• A) $28,000 operating cash inflow;add $5,000 in the reconciliation of earnings and net operating cash flow
• B) $28,000 operating cash inflow
• C) $28,000 operating cash inflow;add $33,000 in the reconciliation of earnings and net operating cash flow
• D) Add $5,000 in the reconciliation of earnings and net operating cash flow.

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Definitions:

Leakage

Any diversion of income from the domestic spending stream; includes saving, taxes, and imports.

Circular Flow

A model in economics that describes the movement of resources, goods and services, and money among different sectors in an economy.

Leakages-Injections Approach

An economic understanding and analysis of how savings, taxes, and imports (leakages) offset government spending, investments, and exports (injections) in the circular flow of income.

Value Added

The increase in worth of a product or service as a result of a particular process, often characterized by the difference between the price of the finished product and the cost of the inputs involved in making it.