Question

Wordmill Publications purchased a printing machine for $40,000 on January 1, 20X1. On December 31, 20X5, it sold the printing machine for $25,000. The book value of the equipment on the date of sale was $20,000. Assuming that the company used the indirect method while preparing its statement of cash flows, which of the following is true of the treatment of the gain on sale of the printing machine in the cash flow statements?a. The gain of $5,000 is deducted in the financing activities section of the statement of cash flows.b. The gain of $5,000 is added in the operating activities section of the statement of cash flows.c.. The gain of $5,000 is added in the cash flows from financing activities section of the statement of cash flows.d. The gain of $5,000 is deducted in the operating activities section of the statement of cash flows.

Answer 1

Answer:

d. The gain of $5,000 is deducted in the operating activities section of the statement of cash flows.

Explanation:

Printing machine is fixed Asset and gain on sale of fixed assets are deducted in operating activities before changes in working capital as it is non operating income and these are deducted from the figure of net profit which is shown in operating activities.