Question

Bear Co. prepares its statement of cash flows using the indirect method. Bear sold equipment with a carrying value of $500,000 for cash of $400,000. How should Bear report the transaction in the operating and investing activities sections of its statement of cash flows?Operating Activities // Investing Activities
a. $100,000 addition to net income // $400,000 cash inflow
b. $100,000 subtraction from net income // $400,000 cash inflow
c. $100,000 addition to net income // $500,000 cash inflow
d. $100,000 subtraction from net income // $500,000 cash inflow

Answer 1

Answer:

b. $100,000 subtraction from net income // $400,000 cash inflow

Explanation:

If Bear Co. prepares its statement of cash flows using the indirect method, and Bear sold equipment with a carrying value of $500,000 for cash of $400,000. Then Bear should report the transaction in the operating and investing activities sections of its statement of cash flows as: $100,000 subtraction from net income // $400,000 cash inflow .

The reason is that although cash of $400,000 is coming into the company through the sale of asset,however the asset is sold at a loss of $100,000

Loss on asset disposal (and losses generally) usually decreases the Net income of businesses.