Which of the Following Statements Regarding the Reporting of Operating

question 83

Multiple Choice

Which of the following statements regarding the reporting of operating cash flows using the direct method is true?

• A) The Financial Accounting Standards Board (FASB) prefers the direct method of accounting for cash flows from operating activities.
• B) The FASB prefers the indirect method of calculating cash flows fro m operations because it gives a more accurate calculation of cash provided by operating activities.
• C) The direct method results in a larger amount of cash flow from operating activities than does the indirect method.
• D) The direct and indirect methods use different presentations for cash flows from investing and financing activities.

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Definitions:

Economies of Scale

Describe the cost advantages that enterprises obtain due to the scale of their operations, typically resulting in reduced costs per unit with increased output.

Long-run Average Total Cost

The average cost per unit of output when all inputs, even physical capital, are adjustable, over a sufficient time period.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, characterized by a reduction in average cost per unit when output is increased.

Diseconomies of Scale

The phenomenon where production costs per unit increase as the volume of output increases.