Question

In a statement of cash flows using the indirect method, an increase in the available-for-sale debt securities account not due to an increase in fair value should be reported as: A deduction from net income in determining cash flows from operating activities. An addition to net income in determining cash flows from operating activities. A net cash inflow from investing activity. A net cash outflow from investing activity.

Answer 1

Answer:

The correct answer is A net cash outflow from investing activity.

Explanation:

An increase in the available-for-sale debt securities account not due to an increase in fair value means there there was a purchase of the available-for-sale debt securities during the period. The essence of the purchase is to generate more trading income, hence, the purchase affects the investing activity section of the cash flows.