another cfo question

[Philly7575]

If Quick Steel Company sold equipment for $200,000 for a gain of $50,000, the net cash flow from operations would be:

A) a decrease in cash flow from financing of $150,000.
B) an increase in cash flow from operations of $50,000.
C) a decrease in cash flow from operations of $50,000.
D) an increase in cash flow from financing of $150,000.

 

[CFAMontreal]

CFI inflow = 200,000$...that's the only cash flow I see, given all information

and yeah...why the financing flows are mentioned in the answers? Sales of assets and financing flows? how they can be related? Maybe proceeds from assets sales may go to retiring debt obligations?



Edited 1 time(s). Last edit at Wednesday, September 20, 2006 at 05:31PM by CFAMontreal.

 

[ChadD]

C

The full $200k would be in CFI so you'd have to deduct the $50k from CFO.

Right?

 

[CFAMontreal]

gains from assets sales are not included into CFO. Instead, they are excluded from NI (using indirect method) to avoid double counting

 

[Super I]

Kind of a poorly worded question.

I think what they're getting at is that the income statment includes the $50k gain, which you want to back out, so that you can include the full $200k proceeds of the sale as CFI, so maybe they mean that under the indirect method you subtract the $50k gain from NI, or answer C.

 

[Philly1616]

I agree poorly worded.... the answer is C

 

[ChadD]

CFAMontreal Wrote:
-------------------------------------------------------
> gains from assets sales are not included into CFO.
> Instead, they are excluded from NI (using indirect
> method) to avoid double counting


I was coming from the standpoint of using the IS to prepare the SCF using the indirect method. The $50k gain would be on the IS and as a result, increase NI in the CFO. Therefore, you'd have to deduct the $50k from the CFO.