A Company Uses the Indirect Method to Prepare the Statement

question 18

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows. It presents the following data on its financial statements: *Relates solely to the acquisition of inventory
What will appear in the operating activities section related to accounts receivable?

• A)The increase of $58,000 will be subtracted from sales revenue.
• B)The increase of $58,000 will be added to net income.
• C)The increase of $58,000 will be subtracted from net income.
• D)The increase of $58,000 will be added to sales revenue.

---

Definitions:

Prepaid Expense

An expense paid in advance of its due date, recorded as an asset on the balance sheet until the benefits are realized or the service period expires.

Magazine Subscription

A magazine subscription is an agreement to receive or gain access to periodic issues of a magazine over a specified period, usually in return for a payment.

Paid

Refers to the status of an obligation or invoice that has been settled or fulfilled through payment.

Vertical Analysis

An approach to financial statement examination whereby each component is presented relative to a foundational number in the report.