A Company Uses the Direct Method to Prepare the Statement

question 108

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 inventory in the operating activities category of the cash flow statement?

• A)The decrease of $25,000 will be subtracted from net income.
• B)The decrease of $25,000 will be added to net income.
• C)The decrease of $25,000 will be subtracted from cost of goods sold to determine payments to suppliers.
• D)The decrease of $25,000 will be added to cost of goods sold to determine payments to suppliers.

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Definitions:

Maintenance Cost

The financial outlay required to maintain assets in efficient working condition over their useful life.

Committed Fixed Cost

Long-term fixed costs that a business incurs, such as lease agreements or long-term contracts with suppliers, which are not easily altered in the short term.

Property Taxes

Taxes assessed on real estate by a local government, based on the property's value, and used to fund public services.

Executive Travel

Expenses incurred for travel by company executives, often including transportation, accommodations, and meals, for business purposes.