Question

When preparing the statement of cash flows indirect method, a(n) ______ on the sale of investment asset is added back to net income?

1) Gain
2) Loss
3) Dividend
4) Interest

Answer 1

In the statement of cash flows prepared using the indirect method, a gain on the sale of an investment asset is added back to net income.

Step-by-step explanation:

In the statement of cash flows prepared using the indirect method, a gain on the sale of an investment asset is added back to net income.

For example, if a company sells an investment asset and earns a gain on the sale, such as selling a stock for a higher price than its purchase price, the gain is added back to the net income.

This is done because the statement of cash flows requires adjusting net income for non-cash items, like gains on the sale of investment assets, to determine the cash flow from operating activities.