Final answer:
Brandt Corp. should report the gain on the sale of the treasury bills as an operating activity in the statement of cash flows.
Step-by-step explanation:
Brandt Corp. should report the change in the book value of the short-term treasury bills on its statement of cash flows. In this case, the book value of the treasury bills is $10,000 and they are classified as cash equivalents on the balance sheet for $11,000. The difference between these two values, which is $1,000, represents a gain on the sale of the treasury bills. Since the treasury bills are cash equivalents, this gain should be reported as an operating activity in the statement of cash flows.
When Brandt Corp. sells short-term treasury bills with a book value of $10,000 for $11,000, which are classified as cash equivalents, this transaction represents a realization of a gain. On the company's statement of cash flows, this should be reported as an inflow in the investing activities section. Since the treasury bills are considered cash equivalents, their sale does not affect the cash flow from operating activities. However, the gain realized from this sale, which would be $1,000 ($11,000 sale price minus $10,000 book value), should be adjusted for in the operating activities section in order to reconcile net income to net cash provided by operating activities.