Question

Luddington, Inc., reported a $100,000 loss of the sale of equipment on its income statement. Which of the following is the correct treatment within the operating activities section of the statement of cash flows using the indirect method?

Answer 1

In the indirect method for the statement of cash flows, a $100,000 loss from the sale of equipment would be added back to net income because it is a non-cash expense that does not affect cash flow.

Step-by-step explanation:

The question pertains to the treatment of a loss from the sale of equipment within the operating activities section of the statement of cash flows when using the indirect method. Specifically, Luddington, Inc. reported a $100,000 loss from the sale of equipment on its income statement. In the indirect method, this loss would be added back to net income or loss in the operating activities section of the statement of cash flows. This is because the loss is a non-cash expense that reduced the net income on the income statement, but did not involve an actual outflow of cash during the period.