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

Question

Business

Teagan Harper

31 July, 05:01

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

+3

Answers (1)

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Andre Crawford · Answer 1

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.