A Company Uses the Indirect Method to Prepare the Statement

question 125

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. How would a gain from the sale of equipment be presented on the statement?

• A)A gain from the sale of equipment would be an addition in the investing activities section.
• B)A gain from the sale of equipment would be added to net income in the operating activities section.
• C)A gain from the sale of equipment would be a deduction in the financing activities section.
• D)A gain from the sale of equipment would be deducted from net income in the operating activities section.

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Definitions:

Income Tax Return

A document filed with tax authorities detailing income earned, tax deductions taken, and taxes owed for the year.

Entity

Any organization, institution, or being that has a distinct existence, legally recognized as capable of rights and duties.

Profit

The financial gain achieved when the revenues earned from business activities exceed the expenses, costs, and taxes needed to sustain the activity.

Personally Liable

The state of being legally responsible for one's actions on an individual basis, which can result in personal financial liability.