Question

on the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be a. deducted from cash received from the sale to determine cash flows from investing activities. b. added to cash received from the sale to determine cash flows from investing activities. c. deducted from net income in converting the net income reported on the income statement to cash flows from operating activities. d. added to net income in converting the net income reported on the income statement to cash flows from operating activities.

Answer 1

Answer:

A. Deducted from cash received from the sale to determine cash flows from investing activities.

Explanation:

In the indirect method, the statement of cash flows is prepared by substracting from sales revenue, the corresponding actual amounts of cash that were received.

A $50,000 gain on the sale of investments is, as the name implies, a revenue obtained from investing activities. By the indirect method, from this amount, the actual cash inflows and outflows would be added or substracted to obtain the final result.