A company sold an investment in trading securities originally costing $30,000,for $28,000.At the beginning of the year,the investment had a valuation allowance of $3,000,debit.What is the correct disclosure for these events on the statement of cash flows prepared under the direct method,assuming that this is the only investment in trading securities?
A) $28,000 operating cash inflow;add $5,000 in the reconciliation of earnings and net operating cash flow
B) $28,000 operating cash inflow
C) $28,000 operating cash inflow;add $33,000 in the reconciliation of earnings and net operating cash flow
D) Add $5,000 in the reconciliation of earnings and net operating cash flow.

Question

Quizplus · Accepted Answer

The sale of the investment in trading securities for $28,000 is recorded as an operating cash inflow on the statement of cash flows under the direct method. However, the valuation allowance of $3,000, which was previously debited, needs to be added back to reconcile earnings and net operating cash flows. Additionally, since this is the only investment in trading securities, there are no other adjustments needed. Therefore, the correct disclosure is a $28,000 operating cash inflow and the addition of $33,000 ($28,000 + $3,000 + $2,000) in the reconciliation of earnings and net operating cash flow (which includes the $2,000 decrease in the trading securities account balance).

A Company Sold an Investment in Trading Securities Originally Costing