A Company Uses the Direct Method to Prepare the Statement

question 9

Multiple Choice

A company uses the direct method to prepare the statement of cash flows.It presents the following amounts on its financial statements. $$\begin{array} { | l | r | r | } \hline & \text { End of this year } & \text { End of prior year } \\\hline \text { Accounts receivable } & \$ 110,000 & \$ 100,000 \\\hline \text { Cost of godds sald } & 560,000 & \\\hline \text { Sales revenue } & 830,000 & \\\hline \text { Accounts payable* } & 75,000 & 67,000 \\\hline \text { Inventary } & 86,000 &105,000 \\\hline \text { Salary payable } & 13,000 & 10,000\\\hline \text { Salary expense } & 49,000 & 45,000\\\hline\end{array}$$
*Relates solely to the acquisition of inventory
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What will appear in the operating activities section related to salary payable?

• A)The increase of $3,000 will be subtracted from net income.
• B)The increase of $3,000 will be subtracted from salary expense to determine payments to employees.
• C)The increase of $3,000 will be added to salary expense to determine payments to employees.
• D)The increase of $3,000 will be added to net income.

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Definitions:

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