A Company Uses the Indirect Method to Prepare the Statement

question 128

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. It presents the following amounts on its financial statements. *Relates solely to the acquisition of inventory
What will appear in the operating activities section related to inventory?

• A)The decrease of $21,000 will be subtracted from net income.
• B)The decrease of $21,000 will be subtracted from cost of goods sold.
• C)The decrease of $21,000 will be added to net income.
• D)The decrease of $21,000 will be added to cost of goods sold.

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Definitions:

Required Return

The lowest yearly percentage gain from an investment required to attract individuals or businesses to invest in a specific security or project.

Profitability Index

A calculation used in capital budgeting to determine the relative profitability of an investment, computed as the present value of future cash flows divided by the initial investment cost.

Crossover Rate

The crossover rate is the rate of return at which two projects have the same net present value (NPV), used in capital budgeting to compare the desirability of investments or projects.

Profitability Index

A financial tool used to evaluate the attractiveness of an investment by dividing the present value of future cash flows by the initial investment cost.