Krech Corporation's Comparative Balance Sheet Appears Below

question 61

Multiple Choice

Krech Corporation's comparative balance sheet appears below:
The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.
-Which of the following is correct regarding the operating activities section of the statement of cash flows?

• A) The change in Prepaid Expenses will be added to net income; The change in Income Taxes Payable will be subtracted from net income
• B) The change in Prepaid Expenses will be subtracted from net income; The change in Income Taxes Payable will be subtracted from net income
• C) The change in Prepaid Expenses will be subtracted from net income; The change in Income Taxes Payable will be added to net income
• D) The change in Prepaid Expenses will be added to net income; The change in Income Taxes Payable will be added to net income

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Definitions:

Uncollectible Accounts

Accounts receivable that are considered unlikely to be collected and are therefore written off as a loss.

Direct Write-off Method

A method used in accounting to write off bad debts when they are determined to be uncollectible, impacting accounts receivable and expense accounts directly.

Recovery of Bad Debt

The process of collecting funds previously written off as uncollectible, generally resulting in an income statement gain the period it's recovered.

Percent of Sales Method

A financial forecasting approach that estimates future financial statements' items as a percentage of projected sales.