Question

Consider the following items: (f) Gain on the sale of equipment (g) Depreciation expense (h) Payment of dividends () Decrease in utilities payable j) Increase in inventory (a) Decrease in accounts receivable (b) Issuance of common stock (c) Increase in interest receivable (d) Purchase of land (e) Decrease in accounts payable How many of these items would be subtracted from net income when using the indirect method to prepare the operating activities section of the statement of cash flows? D) 4 C) 5 B) 2 A) 1

Answer 1

Answer:

D) 4

Explanation:

There’re 3 section in an cash flow statement: Operating, Financing, and Investing

These items to be allocated in the section of cash flow as followings:

a) Decrease in accounts receivable: Operating (added)

(b) Issuance of common stock : Financing

(c) Increase in interest receivable: Operating (subtracted)

(d) Purchase of land : Investing

(e) Decrease in accounts payable: Operating (subtracted)

(f) Gain on the sale of equipment Investing

(g) Depreciation expense: Operating (added)

(h) Payment of dividends: Financing

(i) Decrease in utilities payable: Operating (subtracted)

j) Increase in inventory: Operating (subtracted)

There’re 06 items in Operating as above, in which only 04  are to be subtracted from net income from operating cash flow