Assume a Company Uses the Indirect Method to Prepare Its

question 73

Multiple Choice

Assume a company uses the indirect method to prepare its statement of cash flows.If inventory decreases and unearned revenue increases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?

• A)Both are added to net income.
• B)The change in inventory is added to net income;the change in unearned revenue is subtracted.
• C)Both are subtracted from net income.
• D)The change in unearned revenue is added to net income;the change in inventory is subtracted.

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Definitions:

Plus Four Estimate

A technique used in calculating confidence intervals for proportions where four is added to the number of successes and failures each before calculating the proportion.

Autoxidation

A process involving the oxidation of substances by atmospheric oxygen, often leading to gradual degradation.

Dibenzyl Ether

An organic compound consisting of two benzyl groups connected by an ether linkage, used as a fragrance and flavoring agent.

Diethyl Ether

A highly volatile, flammable organic compound used as a solvent and once popular as an anesthetic, with a characteristic ether smell.