Howard Company Uses the Direct Method to Prepare Its Operating

question 126

Essay

Howard Company uses the direct method to prepare its operating activities section of the statement of cash flows.
Indicate how each event affects net income and the three types of activities on the statement of cash flows. In the net income column, use the letter "I" to indicate increase, the letter "D" to indicate decrease, and the letters "NA" to indicate that the income statement is not affected. In the three cash flow columns, use the letter "I" to indicate cash inflow, the letter "D" to indicate cash outflow, and the letters "NA" to indicate that the cash flow statement is not affected.
On December 31, Year 1, the Prepaid Insurance account decreased by $4,000 as a result of the recognition of insurance expense in an adjusting entry.

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Definitions:

Advantages and Disadvantages

The beneficial and unfavorable aspects or outcomes of a decision, action, or situation.

Wage-Rate Compression

A situation where differences in wages among employees narrow, often leading to less distinction in pay between higher and lower-level jobs.

Compensation Difference

The variation in pay and benefits among employees, which can be due to factors like experience, education, job function, or performance.

Job Evaluation Systems

Formal processes and criteria used by organizations to determine the relative value and complexity of jobs within the organization to establish fair compensation.