CFA Practice Question

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CFA Practice Question

If the sale of an investment generates gains or losses, ______

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.
Correct Answer: A

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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