Assume a Company Uses the Indirect Method to Prepare Its

question 174

Multiple Choice

Assume a company uses the indirect method to prepare its statement of cash flows.If Inventory decreases and Unearned Revenue increases during an accounting period,what does the company do with the changes in these accounts to calculate cash flows from operating activities?

• A) Both are added to net income.
• B) The change in inventory is added to net income; the change in unearned revenue is subtracted.
• C) Both are subtracted from net income.
• D) The change in unearned revenue is added to net income; the change in inventory is subtracted.

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Definitions:

Monopolistic Competition

A market structure characterized by many firms selling differentiated products, with few barriers to entry and some degree of market power.

Economic Profit

The differential between total receipts and overall disbursements, accounting for both direct and indirect expenditures.

Monopolistic Competition

A market structure characterized by many firms selling products that are similar but not identical, allowing for competition based on product differentiation as well as price.

Panel (A)

This term is ambiguous without context but usually refers to a specific subset or group within a broader survey or study, denoted as "A" for distinction.