Which of the following items would be considered an investing cash inflow on the statement of cash flows? a. Proceeds from sale of equipment. b. Purchase of equipment. c. Proceeds from the issuance of common stock. d. Gain on the sale of equipment.
A Purchase of equip – CFI Outflow Proceed from sale of common stock = CFF Inflow Gain on Sale ==> CFO Adjustment in the indirect method.
D. gains on sale of equipment?
A
A d is cfo adjustment
Choice “a” is correct. Proceeds from selling equipment are reflected on the statement of cash flows as an investing cash inflow. Choice “b” is incorrect. Equipment purchases are classified as investing cash outflows. Choice “c” is incorrect. The proceeds from the issuance of common stock are considered a cash inflow on the financing activities section of the statement of cash flows. Choice “d” is incorrect. The gain on sale of equipment is subtracted from net income to determine cash flow from operations using the indirect method.
I know gain on sale of equipment in a non-cash transaction and is used to adjust CFO using indirect. However, I just checked the notes and it looks like it’s a CFI inflow as well (pp 55-56 in Schweser book 3). Am I missing something?
I don’t think the “gain” concept has any place in the statement of cash flows, as it does not relate to cash. In Schweser, aren’t they adding gain to the change in book value as a round-about way of calculating the cash proceeds?
i guess you could think of gain as already factored in the inflow. i.e ‘A’.