At the end of 2010, Schenck Corporation sold its only piece of equipment for $9,000 cash, a price which resulted in a loss of $3,000. During 2010, depreciation expense recognized by Schenck was $1,000. Schenck uses the indirect method to compute net cash flow from operating activities. In reconciling net income to net cash flow from operating activities under the indirect method, the required adjustments based upon the given data:
A) Increase net income by $4,000.
B) Increase net income by $1,000.
C) Decrease net income by $4,000.
D) Increase net income by $3,000.

Question

Quizplus · Accepted Answer

The loss on sale of equipment ($3,000) is added back to net income, and the depreciation expense ($1,000) is also added back, resulting in a total increase of $4,000.

At the End of 2010, Schenck Corporation Sold Its Only