In a statement of cash flows in which the operating activities section is prepared under the...
In a statement of cash flows in which the operating activities section is prepared under the indirect method, a gain on the sale of an investment in debt securities classified as available‐for‐sale should be presented as a(n)
1) Deduction from net income.
2) Addition to net income.
3) Inflow and outflow of cash.
4) Outflow of cash.
Homework Answers
The correct answer is
1) Deduction from net income
Explanation
Since proceeds from sale of investments will be cash inflow from investing activities not from operating activities. Since the gain on investment has been included in net income and net income is used as base to calculate the cash flow from operating activities, so that is why gain on sale of investment is deducted from net income.
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