Would the loss on retirement of long-term debt be added to or deducted from net in come in determining net cash flow from operating activities by the indirect method?
To determine the net cash flow from operating activities using the indirect method, the loss on retirement of long-term debt would be added back to net income.
Here's the step-by-step process:
1. Start with the net income figure from the income statement.
2. Identify the non-cash expenses or losses included in the net income. In this case, the loss on retirement of long-term debt is a non-cash expense as it represents the reduction of debt liabilities rather than an actual outflow of cash.
3. Add back the loss on retirement of long-term debt to the net income. This adjustment is made because the loss on retirement of long-term debt decreased the net income but did not impact the amount of cash generated or used in operations.
4. Continue making adjustments for other non-cash items such as depreciation, amortization, and changes in working capital accounts (e.g., accounts receivable, accounts payable, etc.).
5. Sum up all the adjustments made to the net income to arrive at the net cash flow from operating activities.
So, to specifically answer your question, the loss on retirement of long-term debt would be added back to net income when determining net cash flow from operating activities by the indirect method.