Under the Indirect Approach Adjustments Must Be Made to Net

question 104

Multiple Choice

Under the indirect approach adjustments must be made to net income in the operations section for all of the following items, except

• A) depreciation.
• B) gain on the sale of equipment.
• C) loss on the sale of land.
• D) proceeds for the sale of temporary investments.

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Definitions:

Loss-Minimizing Level

The production level at which a firm minimizes its losses in the short run when it cannot cover total costs, but can cover variable costs.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.

Variable Cost

Costs that change in proportion to the good or service that a business produces.

Profit

The financial gain obtained when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity.