If a company uses the indirect method to determine net cash flows from operating activities:
A)gains on the disposal of equipment must be added to net income and losses subtracted from net income.
B)gains on the disposal of equipment must be added to net income but losses are adjusted against the original asset account.
C)gains on the disposal of equipment must be subtracted from net income and losses added to net income.
D)there is no entry for a gain or loss on the disposal of equipment as this is only an Investing activity.

Question

Quizplus · Accepted Answer

When using the indirect method to determine net cash flows from operating activities, gains on the disposal of equipment are subtracted from net income because they are considered non-operating income and do not reflect cash flows from operating activities. Conversely, losses on the disposal of equipment are added back to net income because they are non-cash charges that reduced net income but did not affect cash flows from operating activities.

If a Company Uses the Indirect Method to Determine Net