Financial Accounting
9th Edition
ISBN: 9781259738692
Author: Libby
Publisher: MCG
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Chapter 12, Problem 3MCQ
To determine
Identify the action that should be taken on the statement of
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Students have asked these similar questions
If the balance in Prepaid Expenses increased during theyear, what action should be taken on the statement of cashflows when following the indirect method, and why?a. The change in the account balance should be subtractedfrom net income because the net increase in PrepaidExpenses did not impact net income but did reduce thecash balance.b. The change in the account balance should be added to netincome because the net increase in Prepaid Expenses didnot impact net income but did increase the cash balance.c. The net change in Prepaid Expenses should be subtractedfrom net income to reverse the income statement effectthat had no impact on cash.d. The net change in Prepaid Expenses should be added tonet income to reverse the income statement effect thathad no impact on cash.
If the balance in prepaid expensel increases during the year, what action should be taken on the
statement of cash flows when following the indirect method, and why?
O The net change in prepaid expenses should be subtracted from net income, because the net increase in
prepaid expenses impacted net income but did not reduce the cash balance.
The net change in prepaid expenses should be added to net income, because the net increase in prepaid
expenses impacted net income but did not increase the cash balance.
O The net change in prepaid expenses should be added to net income, because the net increase in prepaid
expenses did not impact net income but did increase the cash balance.
The net change in prepaid expenses should be subtracted from net income, because the net increase in
prepaid expenses did not impact net income but did reduce the cash balance
None of the above.
Which of the following would be subtracted from net income when using the indirect method to derive net cash from operating activities?
a. Decrease in accounts payable
b. Loss on sale of investments
c. Decrease in accounts receivable
d. Depreciation expense
Chapter 12 Solutions
Financial Accounting
Ch. 12 - Prob. 1QCh. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - What are the major categories of business...Ch. 12 - Prob. 5QCh. 12 - Prob. 6QCh. 12 - Prob. 7QCh. 12 - Prob. 8QCh. 12 - Compare the two methods of reporting cash flows...Ch. 12 - Prob. 10Q
Ch. 12 - Prob. 11QCh. 12 - What are noncash investing and financing...Ch. 12 - Prob. 13QCh. 12 - Prob. 1MCQCh. 12 - Prob. 2MCQCh. 12 - Prob. 3MCQCh. 12 - Prob. 4MCQCh. 12 - Prob. 5MCQCh. 12 - Prob. 6MCQCh. 12 - Prob. 7MCQCh. 12 - Prob. 8MCQCh. 12 - Prob. 9MCQCh. 12 - Prob. 10MCQCh. 12 - Prob. 12.1MECh. 12 - Determining the Effects of Account Changes on Cash...Ch. 12 - Prob. 12.3MECh. 12 - Prob. 12.4MECh. 12 - Prob. 12.5MECh. 12 - Prob. 12.6MECh. 12 - Prob. 12.7MECh. 12 - Prob. 12.1ECh. 12 - Prob. 12.2ECh. 12 - Prob. 12.3ECh. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Prob. 12.6ECh. 12 - Prob. 12.7ECh. 12 - Reporting and Interpreting Cash Flows from...Ch. 12 - Prob. 12.9ECh. 12 - Prob. 12.10ECh. 12 - Prob. 12.11ECh. 12 - Inferring Balance Sheet Changes from the Cash Flow...Ch. 12 - (Chapter Supplement B) Computing and Reporting...Ch. 12 - During the period, Sanchez Company sold some...Ch. 12 - Prob. 12.15ECh. 12 - Prob. 12.16ECh. 12 - Prob. 12.17ECh. 12 - Prob. 12.18ECh. 12 - Prob. 12.19ECh. 12 - Prob. 12.20ECh. 12 - Prob. 12.21ECh. 12 - (Chapter Supplement A) Reporting and Interpreting...Ch. 12 - Prob. 12.23ECh. 12 - Prob. 12.24ECh. 12 - Prob. 12.1PCh. 12 - Prob. 12.2PCh. 12 - Prob. 12.3PCh. 12 - Prob. 12.4PCh. 12 - Prob. 12.5PCh. 12 - (Chapter Supplement C) Preparing a Statement of...Ch. 12 - Prob. 12.1APCh. 12 - Prob. 12.2APCh. 12 - Prob. 12.3APCh. 12 - Prob. 12.1CONCh. 12 - Prob. 12.1CPCh. 12 - Prob. 12.2CPCh. 12 - Prob. 12.3CPCh. 12 - Prob. 12.4CPCh. 12 - Prob. 12.5CPCh. 12 - Prob. 12.6CP
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Similar questions
- In computing the periods net operating cash flows, why are noncash expenses added back to net income?arrow_forwardWhen the indirect method is used to determine net cash provided by (used in) operating activities, subtracting an increase in Accounts Receivable from net income eliminates the effect of recording revenue that: A. Increased net income, but did not impact cash B. Decreased net income, but did not impact cash C. Increased net income and increased cash flow D. Decreased net income and decreased cash flowarrow_forwardWhy might the revenue and cost figures shown on a standard income statement not be representative of the actual cash inflows and outflows that occurred during a period?arrow_forward
- Which of the following should be deducted from net income in computing net cash flows from operating activities using the indirect method? a.a decrease in accounts receivable b.preferred dividends declared and paid c.a decrease in accounts payable d.a decrease in inventoryarrow_forwardUsing the indirect method for preparing the statement of cash flows, which of the following would not be included as an adjustment to net income? A decrease in Prepaid Insurance. An increase in Accounts Payable. An increase in Equipment. An increase in Accounts Receivable. None of the answer choices is correct. → Question 23 Which of the following is not an advantage of using the indirect method to prepare the statement of cash flows? The indirect method provides a link between net income and cash flows from operating activities by reconciling the two amounts. The indirect method typically takes less time to prepare than the direct method.. Accounting systems are better suited to generate information needed for the indirect method. The indirect method is more accurate than the direct method. None of the answer choices is correct.arrow_forwardWhen using the Indirect Method of preparing the Statement of Cash Flows, in the operating section, some accounts are added and some costs are subtracted. If you had to explain to someone why an increase in accounts receivable is subtracted and the opposite as to why a decrease In accounts recelvable is added, what information would you relay to them? (Include in your response the concept of accruals, FASB guidelines, sales and net income on the income statement, and the balance sheet). Answer should be in a paragraph form.arrow_forward
- Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method? a.a decrease in accounts payable b.an increase in inventory c.preferred dividends declared and paid d.a decrease in accounts receivablearrow_forwardWhich of the following items is deducted from net income to arrive at cash flow from operations when using the indirect method? a) Decrease in accounts payable b) Depreciation expense c) Amortization expense d) Decrease in accounts receivablearrow_forwardWhich of the following would not be added to net income in calculating cash flows from operating activities on a statement of cash flows prepared using the indirect method? Multiple Choice A decrease in Accounts Receivable. Amortization Expense. A gain on sale of equipment. An increase in Salaries and Wages Payable.arrow_forward
- When using the Indirect Method of preparing the Statement of Cash Flows, in the operating section, some accounts are added and some costs are subtracted. If you had to explain to someone why an increase in accounts receivable is subtracted and the opposite as to why a decrease in accounts receivable is added, what information would you relay to them? (Include in your response the concept of accruals, FASB guidelines, sales and net income on the income statement, the balance sheet). Answer should be in a paragraph form.arrow_forwardUsing the indirect method, which of the following adjustments to convert net income to net cash provided by operating activities is correct? Add to Net Income Deduct from Net Income Prepaid Expenses increase decrease Taxes Payable decrease increase Inventory decrease increase Accounts Receivable increase decreasearrow_forwardWhich of the following should be added to net income in calculating net cash flow from operating activities using the INDIRECT method? A. A decrease in accounts payable. B. A decrease in accounts receivable. C. Preferred dividends declared and paid. D. An increase in inventory.arrow_forward
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