When the Direct Method Is Used to Determine the Cash

question 73

Multiple Choice

When the direct method is used to determine the cash flows from operating activities,which of the following adjustments must be made to interest expense to determine total interest payments?

• A)Add all changes in Interest Payable.
• B)Add decreases in Interest Payable and subtract increases in Interest Payable.
• C)Add increases in Interest Payable and subtract decreases in Interest Payable.
• D)Subtract all changes in Interest Payable.

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Definitions:

Reserve Requirements

Regulations set by central banks determining the minimum amount of reserves that banks must hold against deposits, used to control the money supply.

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are deemed at risk of failure.

Financial Institutions

Financial Institutions are organizations such as banks, credit unions, and insurance companies that provide a wide range of financial services including deposits, loans, investments, and currency exchange.

Federal Funds Rate

The borrowing cost at which financial institutions lend and borrow federal funds (reserves at Federal Reserve Banks) from each other overnight.