An Example of an Item That Is Deducted from Net

question 48

Multiple Choice

An example of an item that is deducted from net income when preparing the operating activities section of the statement of cash using the indirect method is:

• A) depreciation expense.
• B) compensation expense related to stock option plans.
• C) income from an investment accounted for using the equity method.
• D) unrealized losses on trading investments

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Definitions:

Specific Identification Method

An inventory valuation method that tracks the actual cost of each specific item of inventory to determine cost of goods sold and ending inventory.

Average-Cost Method

An inventory costing method that calculates the cost of goods sold and ending inventory value based on the weighted-average cost of all items.

Inventory Turnover

A ratio that shows how quickly a company's inventory is sold and replaced over a specific period, indicating the efficiency of inventory management.

Merchandisers

Businesses that purchase goods for resale to consumers, playing a vital role in the retail industry by moving products from manufacturers to the market.