Avatar Auto Parts Company Uses the Indirect Method to Prepare

question 43

Multiple Choice

Avatar Auto Parts Company uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance sheet: How will the change in Accounts Payable be shown on the statement of cash flows?

• A) as an addition to Net Income
• B) as a deduction from Net Income
• C) as a deduction from investing cash flows
• D) as an addition to operating cash flows

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Definitions:

Intercompany Gain

Intercompany Gain is the profit recognized from transactions between affiliated companies, which may need to be eliminated during the consolidation process to present accurate financial statements.

Income Tax Rate

The percentage at which an individual or corporation is taxed on their income, which can vary depending on the level of income and jurisdiction.

Unrealized Profits

Profits that have been generated on paper due to the appreciation of an asset's value but have not yet been realized through a transaction.

Upstream Transactions

Transactions where a subsidiary sells goods or services to its parent company, often scrutinized for transfer pricing issues.