CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Equipment with a purchase price of $20,000 and a book value of $12,000 was sold for $10,000. The effect on the cash flow statement, prepared under the indirect method, would be to ______
A. subtract $2,000 from cash flows from operations and show a cash inflow under investing of $10,000.
B. add $2,000 to cash flows from operations and show a cash inflow of $10,000 under cash flows from investing.
C. subtract $10,000 from cash flows from operations and show a cash inflow of $10,000 under cash flows from investing.
Explanation: Losses are added back to cash flows from operations since they were originally subtracted to calculate net income. Adding them back zeros out the effect of the loss. The entire cash proceeds are listed as a cash inflow under cash flows from investing.

User Contributed Comments 2

User Comment
farhan92 I approached this thinking Statement of Cash Flows only took into account the flow of cash and from the question the 10,000 was the only CF.

Good question this.
dbalakos Ooo come on thought that BV was 10,000 and MV 12,000. Hope to avoid misreadings during the exam XD
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