When Using the Indirect Method to Prepare the Operating Section

question 65

Multiple Choice

When using the indirect method to prepare the operating section of a statement of cash flows, which of the following is deducted from net income to compute cash provided by/used by operating activities?

• A)Decrease in accounts receivable.
• B)Gain on sale of land.
• C)Amortization of patent.
• D)All of these answer choices are deducted from net income to arrive at cash flow from operating activities.

---

Definitions:

Amortization Schedule

A table detailing each periodic payment on an amortizing loan, showing amounts toward principal and interest and the remaining balance after each payment.

Compounded Semi-annually

An interest calculation method in which interest is added to the principal balance twice a year, leading to exponential growth.

Monthly Payments

Regular payments made once a month, often used in the context of loans or leases.

Compounded Monthly

Interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan.