Question

company uses the indirect method to prepare the statement of cash flows. It sold a piece of equipment at a loss of $8600. The equipment was purchased several years ago for $72,500 and had accumulated depreciation of $57,900. What is reported under the operating activities section on the statement of cash flows? A) Cash proceeds of $6000 are subtracted from net income. B) Cash proceeds of $6000 are added to net income. C) The loss of $8600 is subtracted from net income. D) The loss of $8600 is added to net income.

Answer 1

D) The loss of $8600 is added to net income.

Step-by-step explanation:

Basically there are three types of activities:

1. Operating activities: It includes those transactions which affect the working capital, and it records transactions of cash receipts and cash payments.

2. Investing activities: It records those activities which include purchase and sale of the fixed assets

3. Financing activities: It records those activities which affect the long term liability and shareholder equity balance.

Since the loss on the sale of the fixed asset is added to the net income and the gain on the sale of the fixed asset is deducted and the same is shown under the operating activities