When preparing a cash flow statement using the indirect method, gains on the sale of plant, property, and equipment (PP&E) are subtracted from net income as they are non-cash transactions that would have artificially increased reported earnings. The correct answer is e.
Under the indirect method of cash flow statement preparation, the adjustments made typically start with net income and then reconcile to net cash provided by operating activities. One would subtract from net income any gains on the sale of plant, property, and equipment (PP&E), as these are non-cash transactions that would have increased net income but did not affect cash. Conversely, stock-based compensation is an expense that does not use cash, hence it is added back to net income.
An unrealized loss on trading investments is a loss that has not actually been realized through a transaction and would typically be added back to net income if it had been recorded as an expense. Finally, a trading loss from trading debt investments would be added back to net income as well if it has been recorded on the income statement since it reflects a reduction in net income but is not an actual cash outflow until the investment is sold.
The correct answer is e.