Question

When preparing a statement of cash flows on the indirect method, which of the following is correct?

Select one:

a. Proceeds from the sale of equipment should be added to net income in the operating activities section.

b. A loss on the sale of land should be added to net income in the operating activities section.

c. The declaration of a cash dividend should be a use of cash in the financing activities section.

d. The issuance of a stock dividend should be a use of cash in the financing activities section.

e. The purchase of land and a building by issuing a long-term note payable should be a source of cash in the financing activities section.

and why explain

Answer 1

Answer : b = A loss on the sale of land should be added to net income in the operating activities section.

Option (a) is incorrect because : proceeds from sale of equipment is investing activity.

Option (c) The declaration of a cash dividend does not effect cash flow statement. Because no involvement of cash.

Option (d) : Issuance of a stock dividend only effect shareholders equity account. There will be no involvement of cash in this transaction.

Option ( e) : Purchase of land and building by issuing a long term note payable does not effect cash flow statement. Because there is no involvement of cash transaction.