Using the Indirect Method, Decreases in Current Assets and Increases

question 78

Multiple Choice

Using the indirect method, decreases in current assets and increases in current liabilities are both added to net income, whereas increases in current assets and decreases in current liabilities are both subtracted from net income to convert it to net cash flow. Noncash expenses such as depreciation are added back to net income.
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Beginning } \\\text { Cash } \\\text { Balance }\end{array} & \begin{array} { r } \text { Cash flows } \\\text { from } \\\text { Operating } \\\text { Activities }\end{array} & \begin{array} { r } \text { Cash flows } + \\\text { from Investing } \\\text { Activities }\end{array} & \begin{array} { r } \text { Cash Flows } \\\text { From } \\\text { Operating } \\\text { Activities }\end{array} & \begin{array} { r } \text { Ending cash } \\\text { balance }\end{array} \\\hline \$ 11,283 + & \$ 37,042 + & ( \$ 16,831 ) + & ( \$ 26,397 ) = & \$ 5,097 \\\hline\end{array}$$
-A company purchases a $300,000 building,paying $200,000 in cash and signing a $100,000 promissory note.What will be reported on the statement of cash flows as a result of this transaction?

• A)A $300,000 cash outflow for investing activities.
• B)A $200,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.
• C)A $200,000 cash outflow for investing activities.
• D)A $300,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.

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Definitions:

Dividend Paying

Refers to stocks or securities that regularly distribute a portion of the issuing company’s earnings to shareholders in the form of dividends.

Strike Call

This term may be referring to the strike price of a call option, which is the set price at which the option holder can buy the underlying asset.

Interest Rate

The amount charged by lenders as a percentage of the principal, representing the cost of borrowing money.

Put Option

A legal document that grants the possessor the option to offload a specified quantity of a specific asset at a fixed price during a defined period, without any mandatory commitment to sell.