CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

A company recognized an unrealized gain of $15,000 on a trading security. This would be reflected on the cash flow statement as ______.
A. an increase in investing cash flows
B. a decrease in investing cash flows
C. a deduction from operating cash flows
Explanation: The unrealized gain would be included in net income but it is a non-cash event. Therefore, it would be deducted from operating cash flows. Only the actual purchase or sale of investments would be an investing activity.

User Contributed Comments 9

User Comment
shasha unrealized: not actual; non-cash movement.
photoshop "Recognize an unrealized" means the stock has not been sold but the Company has booked the gain.
Pooh Why would unrealized gain be included in net income? Can someone clarify? Maybe I should check the structure of the net income statement.
Cata Unrealized gain mean an revenue which is recorded as an estimate (no cash payment was received/no sale was made, it only an increase of value due to increase in the market price) it is recorded as a revenue, it is added up to net income of the period.
cbb1 Unrealized gains/losses on trading securities are recorded on the income statement. Unrealized gains/losses of available for sale securities are recorded directly to equity via Other Comprehensive Income (OCI).
Rotigga Great question.
aakash1108 Indirect Method: "Add Losses" and "Subtract Gains" from Net Income - thus we subtract the unrealized gains - from the operating cashflow section.

Absolutely, great Question!
RCapistrano What happens if the Direct Method is used?
Criticull with direct method, you individually identify flows for CFO, so this 15,000 would be stated explicit, rather than having to be removed from net income to avoid double counting.
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