Under the Indirect Method of Preparing the Statement of Cash

question 101

Multiple Choice

Under the indirect method of preparing the statement of cash flows,a gain on the sale of equipment is:

• A)subtracted from net income in the operating activities section.
• B)added to net income in the operating activities section.
• C)subtracted from the book value of the equipment in the financing activities section.
• D)ignored since this transaction does not affect cash.

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Definitions:

Net Income Before Taxes

A financial measure showing a company's profitability after accounting for all expenses except taxes.

Stockholders' Equity

The ownership interest of shareholders in a company, represented by the company's assets minus its liabilities.

Earnings Per Share

A company's profit divided by its number of outstanding shares of common stock, indicating the profitability available to shareholders on a per-share basis.

Current Ratio

A financial metric assessing a firm's capacity to meet its short-term debts due within a year, determined by dividing its current assets by its current liabilities.