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17 November, 18:27

Bear Co. prepares its statement of cash flows using the indirect method. Bear sold equipment with a carrying value of $500,000 for cash of $400,000. How should Bear report the transaction in the operating and investing activities sections of its statement of cash flows? Operating Activities / / Investing Activities

a. $100,000 addition to net income / / $400,000 cash inflow

b. $100,000 subtraction from net income / / $400,000 cash inflow

c. $100,000 addition to net income / / $500,000 cash inflow

d. $100,000 subtraction from net income / / $500,000 cash inflow

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  1. 17 November, 20:39
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    b. $100,000 subtraction from net income / / $400,000 cash inflow

    Explanation:

    If Bear Co. prepares its statement of cash flows using the indirect method, and Bear sold equipment with a carrying value of $500,000 for cash of $400,000. Then Bear should report the transaction in the operating and investing activities sections of its statement of cash flows as: $100,000 subtraction from net income / / $400,000 cash inflow.

    The reason is that although cash of $400,000 is coming into the company through the sale of asset, however the asset is sold at a loss of $100,000

    Loss on asset disposal (and losses generally) usually decreases the Net income of businesses.
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