A Company Uses the Direct Method to Prepare the Statement

question 78

Multiple Choice

A company uses the direct 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 accounts receivable?

• A)The increase of $15,000 will be subtracted from net income.
• B)The increase of $15,000 will be subtracted from sales to determine cash received from customers.
• C)The increase of $15,000 will be added to sales to determine cash received from customers.
• D)The increase of $15,000 will be added to net income.

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Definitions:

Opportunity Cost

The value of the next best alternative forgone as the result of making a decision.

Production Alternative

Different ways in which a firm could allocate its resources to produce various goods or services.

Capital Goods

Physical assets used by a company to produce goods and services that are used to produce consumer goods or services.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.