A Company Uses the Direct Method to Prepare the Statement

question 142

Multiple Choice

A company uses the direct method to prepare the statement of cash flows.It presents the following data on its financial statements:

*Relates solely to the acquisition of inventory
Which of the following is correct about accounts payable transaction in the operating activities category in the statement of cash flows?

• A)The increase of $10,000 will be subtracted from net income.
• B)The increase of $10,000 will be added to net income.
• C)The increase of $10,000 will be added to purchases to determine payments to suppliers.
• D)The increase of $10,000 will be subtracted from purchases to determine payments to suppliers.

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Definitions:

Effective-Interest Amortization

A method of amortizing a bond discount or bond premium that reflects the effective interest rate a company pays bondholders over the life of a bond.

Coupon Interest Rate

The annual interest rate paid by a bond expressed as a percentage of its face value.

Present Value Factor

A factor used to calculate the present value of a sum to be received in the future, considering a specific interest rate over a certain period.

Premium Amortization

The gradual reduction of the premium paid above the face value of a bond, allocated over the bond's life until maturity.