Assume the Indirect Method Is Used to Compute Net Cash

question 117

Multiple Choice

Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Interest Income (assume that cash received is equal to amount reported) -indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

• A)Add to net income to arrive at net cash flows from operating activities.
• B)Subtract from net income to arrive at net cash flows from operating activities.
• C)Not used to adjust net income to calculate net cash flows from operating activities.

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Definitions:

Stockholders

The owners of a corporation.

Common Stock

A type of security that represents ownership in a corporation, with holders typically having voting rights and potential for dividends.

Working Capital

The difference between a company's current assets and current liabilities, indicating the short-term financial health and operational efficiency.

Current Liabilities

Short-term financial obligations due within one year or within the normal operating cycle of the business, such as accounts payable and short-term loans.