# CFO indirect method(sale of company trucks)

Net Income = 100 Depreciation = 25 Purchase of machine = \$50 Sale of company trucks = \$30 Sale of common stock = \$45 Decrease in accounts receivable = \$10 Increase in inventory = \$20 Issuance of bonds = \$25 Increase in accounts payable = \$15 Increase in wages payable = \$10 Cash flow from operating activities is: A. \$125 B. \$135 C. \$140 D. \$185 I calculated this as Net Income +Depreciation-Sale of company trucks+Decrease in accts. receivable-Increase in inventory+Increase in accounts payable+Increase in wages payable and got \$110. Why shouldn’t the sale of company trucks be deducted from net income since it would have been included in net income?

Sale of Company Trucks = Sale of a capital asset – assuming this is a trucking company. So it would not be a CFO, it would be a CFI Inflow. Gain on Sales of Trucks (if any) would be a CFO Deduction component. Net Income = 100 Depreciation = 25 Purchase of machine = \$50 Sale of company trucks = \$30 Sale of common stock = \$45 Decrease in accounts receivable = \$10 Increase in inventory = \$20 Issuance of bonds = \$25 Increase in accounts payable = \$15 Increase in wages payable = \$10 100 + 25 +10 - 20 + 15 + 10 = 140 --> C would be CFO CFI = + 30 - 50 = -20 CFF = + 45 + 25 = + 70

A gain on the sale of company truck would be included in NI, you would need to deduct that. In this case it does not state that it was a gain, so you can assume it is a CFI cash flow.

Only the gains/losses from the sale of PP&E assets is included in the NI. So only the gains/losses should be adjusted in CFO. Answer is C.