Assume That the Indirect Method Is Used to Determine Net

question 216

Multiple Choice

Assume that the indirect method is used to determine net cash provided by (used in) operating activities and that Prepaid Insurance decreased during the year.That decrease is added to net income because:

• A)the company paid additional premiums this period in excess of the Insurance Expense recorded on the income statement.
• B)a decrease in Prepaid Insurance causes an increase in Insurance Expense and a decrease in net income,but it does not involve cash so it is added back to net income.
• C)it includes the impact of increasing cash and increasing net income.
• D)it accounts for purchasing more insurance during the period than has been expensed.

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Definitions:

Sociological Principles

Encompasses the basic concepts, frameworks, and theoretical fundamentals that guide the study of society, social relationships, and social behavior.

Psychological Behaviors

Actions or reactions of an individual, stemming from their mental state and emotional responses, often studied within the context of psychology.

George Homans

A prominent American sociologist who contributed significantly to the development of social exchange theory.

Social Exchange Theory

A theory suggesting that social behavior is the result of an exchange process aiming to maximize benefits and minimize costs to the individuals or groups involved.