When Preparing the Statement of Cash Flows Under the Direct

question 113

Multiple Choice

When preparing the statement of cash flows under the direct method,all of the following would be an inappropriate procedure except

• A)add depreciation expense to net income under the operating activities.
• B)subtract depreciation expense from net income under the operating activities.
• C)add depreciation expense to net income under the financing activities.
• D)subtract depreciation expense from net income under the financing activities.
• E)ignore depreciation expense.

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Definitions:

Recognized Gain

The portion of a capital gain on which taxes must be paid, typically realized when an asset is sold for more than its purchase price.

Adjusted Basis

The original cost of a property plus improvements and minus depreciation or damages, used to calculate capital gains or losses.

Fair Market Value

The price at which a property would sell under normal conditions in an open and competitive market.

Recognized Gain

This is the portion of gain realized from the sale or exchange of an asset that is subject to taxation under the IRS code.