Marvel Company sold land that cost $440,000 for $470,000 cash. Indicate whether each of the following statements is true or false regarding Marvel's statement of cash flows (SCF). ________ a) If Marvel uses the direct method, there would be a $30,000 cash inflow in the operating section of the SCF.________ b) If Marvel uses the indirect method to prepare the operating activities section of the statement of cash flows, the gain on the sale of the land would be added to net income in calculating the cash flows from operating activities. ________ c) Marvel would report the event in the investing activities section of the SCF the same way whether it uses the direct method or the indirect method.________ d) Marvel would disclose the event as a noncash investing and financing

Question

activity.________ e)Marvel would report a $470,000 cash inflow in the investing section of the SCF.

What will be an ideal response?

Answer 1

a) F b) F c) T d) F e) T

a) This is false. The proceeds from the sale are not reported as a cash flow from operating activities. Cash flows reported as investing activities include cash receipts (inflows) from selling property, plant, and equipment. 
b) This is false. Using the indirect method, the gain is subtracted from net income to arrive at cash provided by operating activities. 
c) This is true. Under generally accepted accounting principles, the operating activities section of the statement of cash flows can be presented using either the direct or the indirect method. The investing activities section is not affected by the choice of direct or indirect method.
d) This is false. Because cash is received, this event is not an example of noncash investing and financing activities.
e) This is true. The cash received is a cash inflow from investing activities.