Question

1) 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)

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

Answer 1

1) False

Under the indirect method of cash flow, gain on sale of equipment being a non operating item would be reduced from the net income. However the interest expense on the amortisation of bond discount would be added back as this also is a non operating item.

2) False

Assuming that the note receivable is short term and is received from customers on account of sale, this would be part of the operatng activity and not investing activity. Ideally if the note receivable is for any other purose other than sale to customer, then it would be part of the investing activity.