30.03.2023 - 02:01

How should a gain on the sale of an office building owned by the entity be presented in a cash flow statement? a. as an inflow in the investing activities section of the cash flow because it pertains to a long-term asset b. as an inflow in the financing a

How should a gain on the sale of an office building owned by the entity be presented in a cash flow statement?

a. as an inflow in the investing activities section of the cash flow because it pertains to a long-term asset

b. as an inflow in the financing activities section of the cash flow statement because the building was constructed with a long-term loan from a bank that needs to be repaid from the sale proceeds

c. as an adjustment to the net income in the operating activities section of the cash flow statement prepared under the indirect method

d. added to the sale proceeds and presented in the investing activities section of the cash flow statement

Answers (1)
  • Buddha09
    April 4, 2023 в 12:52

    The correct answer is (a) as an inflow in the investing activities section of the cash flow statement because it pertains to a long-term asset.

    The sale of an office building is a cash inflow from investing activities because it involves the disposal of a long-term asset that is not part of the entity's core operations. The investing activities section of the cash flow statement shows the cash inflows and outflows related to the purchase and sale of long-term assets such as property, plant, and equipment, as well as investments in other entities.

    Option (b) is incorrect because the repayment of a long-term loan is not related to the sale of the office building and therefore should not be reflected in the financing activities section of the cash flow statement.

    Option (c) is also incorrect because the gain on the sale of the office building is not an adjustment to net income but rather a separate cash inflow that should be shown in the investing activities section.

    Option (d) is incorrect because the gain on the sale of the office building should not be added to the sale proceeds but rather should be presented separately as a cash inflow from investing activities.

    In summary, the gain on the sale of an office building should be presented as an inflow in the investing activities section of the cash flow statement because it pertains to a long-term asset.

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