B is corrent. When preparing the statement of cash flows under the indirect approach, a loss on the sale of machinery would be an addition to net income. The loss decreases net income, but does not reduce cash. Therefore, the loss must be added back to net income to determine cash flows from operating activities.
A is incorrect. A loss on the sale of machinery in the ordinary course of business would not be reported as an inflow or an outflow of cash. When preparing the statement of cash flows under the indirect approach, a loss on the sale of machinery would be an addition to net income. The loss decreases net income, but does not reduce cash. Therefore, the loss must be added back to net income to determine cash flows from operating activities.
C is incorrect. A loss on the sale of machinery in the ordinary course of business would not be reported as an outflow of cash. When preparing the statement of cash flows under the indirect approach, a loss on the sale of machinery would be an addition to net income. The loss decreases net income, but does not reduce cash. Therefore, the loss must be added back to net income to determine cash flows from operating activities.
D is incorrect. A loss on the sale of machinery in the ordinary course of business would not be a deduction from net income. When preparing the statement of cash flows under the indirect approach, a loss on the sale of machinery would be an addition to net income. The loss decreases net income, but does not reduce cash. Therefore, the loss must be added back to net income to determine cash flows from operating activities.
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