Question

In a statement of cash flows using the indirect method, an increase in available-for-sale securities due to an increase in their fair value should be reported as: a) An investing Activityb) Not Reportedc) An addition to net income in determining cash flows from operating activities.d) A deduction from net income in determining cash flows from operating activities.

Answer 1

Answer:

The correct answer is d) A deduction from net income in determining cash flows from operating activities.

Explanation:

To get net cash flow using the indirect method we must make adjustments to the net income.

It depends on the account if it is added or subtracted to net income.

In this case, an increase in available-for-sale securities due to an increase in their fair value should be reported as a deduction from net income.