When Preparing a Statement of Cash Flows (Indirect Method), an Increase

question 16

Multiple Choice

When preparing a statement of cash flows (indirect method) , an increase in ending inventory over beginning inventory will result in an adjustment to net income because

• A) cash was increased while cost of goods sold was decreased.
• B) acquisition of inventory is an investment activity.
• C) inventory purchased during the period was less than inventory sold, resulting in a net cash increase.
• D) cost of goods sold on an accrual basis is lower than on a cash basis.

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Definitions:

Semiannual Interest Expense

The cost incurred for borrowing money, calculated and paid every six months.

Interest Method

A financial calculation technique used to allocate interest expense or income over a specific period, based on the principal amount and the interest rate.

Bonds Issued

refers to the creation and sale of bonds by an issuer to investors as a form of borrowing, usually to raise capital for long-term investments.

Semiannual Interest

An interest payment made twice a year on a loan or investment.