Question

Which of the following would be subtracted from net income when determining cash flows from operating activities under the indirect method?
An increase in accounts payable.

Depreciation expense.

A decrease in prepaid insurance.

A gain on the sale of a depreciable asset.

Answer 1

Answer:

A gain on the sale of a depreciated or to be depreciated asset.

Explanation:

A gain from sale of depreciated asset is added to net income while computing the net income.

While preparing the cash flow statement, using indirect method, we make adjustments to net income, in such adjustments, we decrease the value of gain recorded in such net income from sale of depreciated asset, as the entire amount of sale consideration is added in cash inflow from investing activity.

Thus the correct option for above is

Last Statement

A gain on the sale of a depreciated or asset which has to be depreciated.