[Anonymous]

Which of the following transactions is included in the operating activities section of a cash

flow statement prepared using the indirect method?

A. Gain on sale of plant asset.

B. Sale of property, plant and equipment.

C. Payment of cash dividend to the shareholders.

D. Issuance of common stock to the shareholders.

Answer:

A. (Correct!) The gain on the sale of a plant asset is a noncash item that is used to reconcile net income to cash flows from operations.

But check out the explanation for B:

B. The cash received on the sale of PPE is included in the operating section of the statement of cash flows

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Even the explanation of B say this is included in the operating section, so why is this an incorrect answer?

[Anonymous]

Indirect focuses on adding/subtracting NONcash items to/from net income to get your true operating cash flow. A gain is noncash because it's the difference of what you have on your books as the value of the asset and the amount you actually received in cash. The sale is just the cash portion so you don't need to do anything with it in the indirect method.

[Anonymous]

Indirect focuses on adding/subtracting NONcash items to/from net income to get your true operating cash flow. A gain is noncash because it's the difference of what you have on your books as the value of the asset and the amount you actually received in cash. The sale is just the cash portion so you don't need to do anything with it in the indirect method.

[Anonymous]

Thanks for the explanation. I just recently took REG so my mind about everything is still in cash basis mode. (sigh) studying for FAR is not going to be pretty.

[Anonymous]

Thanks for the explanation. I just recently took REG so my mind about everything is still in cash basis mode. (sigh) studying for FAR is not going to be pretty.

[Author]

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