A Company Uses the Indirect Method to Prepare the Statement

question 178

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. Which of the following items would be subtracted from net income in determining the net cash flow from operating activities?

• A)An increase in dividends payable would be subtracted from net income.
• B)A loss on the sale of equipment would be subtracted from net income.
• C)A gain on the sale of equipment would be subtracted from net income.
• D)Depreciation expense would be subtracted from net income.

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Definitions:

Dividend Yield

The annual dividends a firm distributes, expressed as a ratio of its current stock price.

Taxable Income

The portion of an individual's or corporation's income used as the basis for calculating tax owed to the government, after all allowable deductions or exemptions.

Preferred Stock

Preferred stock is a class of shares that typically provides a fixed dividend and has priority over common stock in the event of a liquidation, but generally does not carry voting rights.

Deductible

An amount that can be subtracted from an individual's or organization's taxable income, thereby reducing the amount of tax owed.