A Company Uses the Indirect Method to Prepare the Statement

question 32

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 payable?

• A)The increase of $14,000 will be subtracted from net income.
• B)The increase of $14,000 will be added to net income.
• C)The increase of $14,000 will be subtracted from cost of goods sold.
• D)The increase of $14,000 will be added to cost of goods sold.

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Definitions:

Total Cost

The sum of all costs incurred by a business in producing a given level of output, including fixed and variable costs.

Diminishing Marginal Returns

Describes a point in production where the addition of one more unit of input results in a less than proportional increase in output.

Per-unit Costs

Refer to the average cost for each unit of a product or service that is produced, including all relevant expenses.

Marginal Costs

The additional cost incurred by producing one more unit of a good or service.