Final answer:
Under the indirect method of cash flow calculation, gains and losses from the sale of long-term assets require adjustments to net income, while stock dividends distributed, prepaid expenses, and accrued expenses do not.
Step-by-step explanation:
When using the indirect method for calculating cash flow from operating activities, certain nonoperating items require adjustments to net income. The nonoperating items that require such adjustments are gains from sale of long-term assets and losses from sale of long-term assets.
These items are non-operating because they are not related to the primary operations of a business. When a gain is realized, it is subtracted from net income because it has already increased the net income but did not involve cash from operations. Conversely, when a loss is realized from the sale of long-term assets, it is added back to net income as this loss reduced net income but did not involve the use of operating cash.
On the other hand, stock dividends distributed are not an income statement item and do not affect net income. Similarly, prepaid expenses and accrued expenses are changes in working capital accounts and are already accounted for in operating cash flow when using the indirect method, thus they do not require separate adjustments to net income.