Question

13) When using the indirect method to prepare the operating section of a statement of cash flows, a gain on the sale of equipment and the amortization of bond discount would both be added back as an adjustment to net income. (answer True or False)

14) The following information on selected cash transactions for 2021 has been provided by York Company:

          Proceeds from sale of land                     $290,000

          Proceeds from long-term borrowings     480,000

          Purchases of inventories                       1,020,000

          Proceeds from sale of Yorks common stock 385,000

What is the cash provided (used) by investing activities for the year ended December 31, 2021, as a result of the above information?

15) Interest collected and principal collected on a note receivable are examples of an investing activity. (answer True or False)

Answer 1

13) False

Amortizaton of bond discount like depreciation is a non-cash expense, so it is added back to the net income in the operating activities section of the cash flow statement. Its because amortization expense is already deducted while computing the net income in the income statement.

Gain on sale of equipment is deducted from the net income in the perating activities section of the cash flow statement because it is already added while computing the net income in the income statement.