Which of the Following Statements Regarding Calculation of Cash Flows

question 56

Multiple Choice

Which of the following statements regarding calculation of cash flows from operating activities under the indirect method is true?

• A) When the indirect method is used, changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flows from operating activities.
• B) When the indirect method is used, depreciation expense is added to net income as a step in the process of calculating net cash flows from operating activities.
• C) When the indirect method is used, gains on the sale of property, plant and equipment are added to convert net income to net cash flows from operating activities.
• D) When the indirect method is used, changes in long-term liabilities are subtracted to convert net income to net cash flows from operating activities.

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Definitions:

Limited Liability Company

An organizational form that merges the limited liability offered by a corporation with the partnership or sole proprietorship's benefit of pass-through taxation.

Limited Liability Partnership

A partnership in which some or all partners have limited liabilities, protecting them from being personally liable for the acts of the partnership.

Business Organization

A structured commercial or entrepreneurial entity set up according to a particular legal framework to conduct business and provide goods or services.

Perfect Substitutes

Products or offerings that serve as substitutes for one another without diminishing the consumer's satisfaction.