Avatar Company Uses the Indirect Method to Prepare the Statement

question 101

True/False

Avatar Company uses the indirect method to prepare the statement of cash flows. Please refer to the following section of the comparative balance sheet:
$\begin{array}{|l|r|r|r|}\hline&2014 & 2013 & \text { Increase/decrease }\\\hline \text { Cash } & \$ 33,000 & \$ 18,000 & \$ 15,000 \\\hline \text { Accounts receivable } & 22,000 & 35,000 & (13,000) \\\hline \text { Inventory } & 170,000 & 115,000 & 55,000 \\\hline \text { Total assets } & \$ 225,000 & \$ 168,000 & \$ 57,000 \\\hline\end{array}$
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The change in inventory will be shown as a positive cash flow in the adjustments to Net income.

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Definitions:

Markup

The percentage of the cost price of items that is added on to cover overhead expenses and profit.

FIFO Method

"First In, First Out," an inventory management and valuation method where goods produced or acquired first are sold or used first.

Ending Inventory

The value or quantity of goods available for sale at the end of an accounting period, calculated to determine the cost of goods sold.

Fire Screens

Protective devices placed in front of fireplaces to prevent sparks and embers from escaping into the room.