Assume a Company Uses the Indirect Method to Prepare Its

question 134

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 net 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:

Stock Split

A corporate action that increases the number of a corporation's outstanding shares by dividing each share, which in turn reduces its price but not the total market capitalization.

Total Market Value

The aggregate value of a company or an asset in the marketplace, based on current prices and the total number of shares or units outstanding.

Stock Split

A corporate action where a company divides its existing stock into multiple shares to boost the liquidity of the shares.

Shares Outstanding

The cumulative amount of a company's shares that have been approved, distributed, and acquired by shareholders and currently possessed by them.