In a statement of cash flows using the indirect method, an increase in the available-for-sale debt securities account not due to an increase in fair value should be reported as: A deduction from net income in determining cash flows from operating activities. An addition to net income in determining cash flows from operating activities. A net cash inflow from investing activity. A net cash outflow from investing activity.

Question

Sarahi

Business

13 February, 21:21

In a statement of cash flows using the indirect method, an increase in the available-for-sale debt securities account not due to an increase in fair value should be reported as: A deduction from net income in determining cash flows from operating activities. An addition to net income in determining cash flows from operating activities. A net cash inflow from investing activity. A net cash outflow from investing activity.

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Teresa Quinn · Answer 1

The correct answer is A net cash outflow from investing activity.

Explanation:

An increase in the available-for-sale debt securities account not due to an increase in fair value means there there was a purchase of the available-for-sale debt securities during the period. The essence of the purchase is to generate more trading income, hence, the purchase affects the investing activity section of the cash flows.