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Basic Question 16 of 20
If the sale of an investment generates gains or losses, ______
B. the gains or losses are reported as operating cash flows while the recovery of the investment's book value is reported in the investing section of the cash flow statement.
C. all proceeds from the sale are reported as operating cash flows.
A. all proceeds from the sale are reported in the investing section of the cash flow statement.
B. the gains or losses are reported as operating cash flows while the recovery of the investment's book value is reported in the investing section of the cash flow statement.
C. all proceeds from the sale are reported as operating cash flows.
User Contributed Comments 9
User | Comment |
---|---|
rethan | Is this correct? When a company owns a security that pays a dividend, that dividend is reported under operating activities. However, the gains or losses that arise from the sale of the security are reported under investing activties. |
magicchip | But they are not asking about securities. |
Poorvi | Gains and losses dont affect the cash flow statement. only sale proceeds affect the cash flow. |
cfairs | What about taxes from the sale? May be 'proceeds' in question refers to after-tax.. |
jike | right. If the tax is not mentioned then don't worry about it, otherwise there would be too many unknown factors in a question. |
Saxonomy | cfairs, don't make the exam harder than it already is. |
johntan1979 | cfairs = somebody from IRS taking the CFA! |
Inaganti6 | Gains and losses affect CFO if you're doing indirect method no ? You subtract any gains and add losses ? |
icm0911 | Imagine Initial Book Value is $50,000 and you sell for $75,000. You would reflect a $75,000 cash inflow in the investing section related to the sale and then a $25,000 "outflow" in the operating section where you reconcile the non-cash net income items such as depreciation, gains and losses, etc.. Any taxes would be included in Net Income and are not non-cash so there would be no specific line item for them. |
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Learning Outcome Statements
describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data
CFA® 2025 Level I Curriculum, Volume 2, Module 4.