When Using the Indirect Method, How Is the Purchase of Equipment

question 168

Multiple Choice

When using the indirect method, how is the purchase of equipment for cash shown on the statement of cash flows?

• A) Operating activity
• B) Investing activity
• C) Financing activity
• D) Noncash investing and financing activity

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Definitions:

Installment Method

A revenue recognition method allowing companies to recognize revenue and expense in proportion to the cash received from sales, typically used when sales are made with terms allowing payment over more than one year.

Percentage-of-completion Method

An accounting method that recognizes revenue and expenses related to long-term projects proportionally as the work is completed.

Temporary Differences

Differences between the carrying amount of an asset or liability in the balance sheet and its tax base that will result in taxable or deductible amounts in future periods.

Deferred Tax Liabilities

Future tax obligations that arise due to temporary differences between the book value and tax value of assets and liabilities.