Question

Which statement is true for gains and losses from capital asset sales?

(a) They do not affect cash and are excluded from the statement of cash flows.
(b) They are included in cash flows from operating activities.
(c) They are included in cash flows from investing activities.
(d) They are included in cash flows from financing activities.

Answer 1

Gains and losses from capital asset sales are included in cash flows from investing activities.

Step-by-step explanation:

Gains and losses from capital asset sales are included in cash flows from investing activities.

When a capital asset is sold, it either generates a gain or a loss. This gain or loss is considered a cash flow from investing activities because it involves the buying and selling of long-term assets.

For example, if a company sells a piece of equipment for a higher price than its original cost, it will record a gain on the sale, which will increase its cash flows from investing activities. Conversely, if a company sells a piece of equipment for a lower price than its original cost, it will record a loss on the sale, which will decrease its cash flows from investing activities.