- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 4. Analyzing Statements of Cash Flows I
- Subject 4. The Indirect Method
CFA Practice Question
True or False?
A transaction in which an asset that cost $45,000, had a book value of $4,000, and was sold for $3,000 would appear on the statement of cash flows as an investing activity of $4,000.
Correct Answer: False
The investing activity is the amount of cash flows from the transaction. In this case, the net cash inflow was $3,000.
User Contributed Comments 3
| User | Comment |
|---|---|
| johntan1979 | If the questions stated that the asset was purchased for $45,000, then the answer is $42,000 net cash outflow. |
| johntan1979 | Loss on sale = book value - amount sold = $1,000 This is ADDED back to net income under indirect method. Depreciated value = cost - book = $41,000 This is ADDED to depreciation expense, which is then ADDED back to net income. |
| fredpat01 | Thank you Johntan1979! |