Qtopia Company Uses the Direct Method to Prepare Its Statement

question 91

True/False

Qtopia Company uses the direct method to prepare its statement of cash flows. It has reported Cost of Goods Sold of $85,000 on its income statement for the year 2015. If the balance in Accounts Payable, for inventory suppliers only, has gone down by $8,000 during the year, then $8,000 will have to be subtracted from $85,000 as part of the process to calculate payments to suppliers for inventory purchases.

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Definitions:

Opportunity Cost

The cost of forgoing the next best alternative when making a decision. It represents the benefits an individual, investor or business misses out on when choosing one alternative over another.

Implicit Rate

The implied rate of return that is not explicitly stated, often used in the context of comparing the cost of borrowing to the rate of return on investments.

Equity Capital

The amount of money that is invested in a company by its owners, in exchange for ownership interest or shares.

Economic Profit

The surplus remaining after deducting total costs from total revenues, including both explicit and implicit costs, and representing a measure of economic efficiency.