Which of the Following Statements Regarding the Calculation of Cash

question 50

Multiple Choice

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

• A) When the direct method is used, each revenue and expense account on the income statement is individually adjusted to calculate net cash flows from operating activities.
• B) Noncash revenues and expenses must be included in net cash flows from operating activities when preparing a Statement of Cash Flows using the direct method.
• C) Depreciation is reported as a cash inflow in the cash flows from operating activities when the direct method is used.
• D) A loss on the sale of a long-term asset is subtracted in the cash flows from operating activities when the

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Definitions:

Significant Influence

The power to participate in the financial and operating policy decisions of a business, without controlling it.

Common Shares

Equity investments that represent ownership in a company, giving holders voting rights and a share in the company's profits through dividends.

Equity Method

An accounting method used to assess the profits earned through the investment in another company by updating the investment's value based on the investee's net income or loss.

Journal Entries

The record of financial transactions in an accounting system, entered as debits and credits to various accounts.