A flood damaged a building and contents. The receipts from insurance companies totaled $600,000, which was $180,000 less than the book values. The tax rate is 30%. On the statement of cash flows (indirect method), the flood loss should

a. be shown as an inflow from investing activities of $438000.

b. be shown as an addition to net income of $438000.

c. be shown as an inflow from investing activities of $611000

d. not be shown.

Question

Business

Billy Rush

2 June, 12:01

A flood damaged a building and contents. The receipts from insurance companies totaled $600,000, which was $180,000 less than the book values. The tax rate is 30%. On the statement of cash flows (indirect method), the flood loss should

a. be shown as an inflow from investing activities of $438000.

b. be shown as an addition to net income of $438000.

c. be shown as an inflow from investing activities of $611000

d. not be shown.

+2

Answers (1)

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Jewel · Answer 1

The correct answer is d. not be shown.

It should be shown as an addition to net income of $180,000

Explanation:

Given information are, The receipts from insurance companies totaled $600,000 The receipt of insurance was $180,000 less than the book values. The tax rate is 30%. The cash flows (indirect method), the flood loss should not be shown It should be shown as an addition to net income of $180,000. The indirect method gives the statement of cash flows from beginning with the net income or loss. Most companies chooses to report the cash flow statement by using the indirect method because the accounting provides a better measure when the cash flows of the business activity. An indirect method is defined as a reporting format for the cash flow statement which begins with net income and controls it for the cash operating activities throughout the year to arrive at the ending cash balance.