Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Loss on Sale of Investment-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A) Add to net income to arrive at net cash flows from operating activities
B) Subtract from net income to arrive at net cash flows from operating activities
C) Not used to adjust net income to calculate net cash flows from operating activities

Question

Quizplus · Accepted Answer

A loss on the sale of an investment is a non-cash expense that reduces net income. To adjust net income to reflect actual cash flows, this loss is added back to net income in the operating activities section of the cash flow statement.

Assume the Indirect Method Is Used to Compute Net Cash