Spa Company Uses the Direct Method in Determining Net Cash

question 114

Multiple Choice

Spa Company uses the direct method in determining net cash provided by operating activities. The income statement shows income tax expense $85000. Income taxes payable were $35000 at the beginning of the year and $20000 at the end of the year. Cash payments for income taxes are

• A) $70000.
• B) $85000.
• C) $100000.
• D) $140000.

---

Definitions:

Financing Activities

Activities that result in changes in the size and composition of the equity and borrowings of a company.

Inventory Account

An account on the balance sheet that reports the value of a company's goods that are unsold at the end of the accounting period.

Indirect Method

A method used in cash flow statements to convert net income into net cash flow from operating activities, by adjusting for non-cash transactions.

Cash Dividends

Profits paid out to shareholders by a corporation from its earnings in the form of cash.