A Company Uses the Indirect Method to Prepare the Statement

question 132

Multiple Choice

A company uses the indirect method to prepare the statement of cash flows.How will the adjustment to reflect the amount of cash paid for interest be presented on the statement?

• A)The adjustment will be for the increase or decrease in accounts receivable for the period and will adjust net income in the operating activities section.
• B)The adjustment will be for the increase or decrease in inventory for the period and will adjust net income in the operating activities section.
• C)The adjustment will be for the increase or decrease in accrued expenses for the period and will adjust net income in the operating activities section.
• D)The adjustment will be for the increase or decrease in accounts payable for the period and will adjust net income in the operating activities section.

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Definitions:

Bonds Payable

A financial accounting term used to describe the outstanding debts owed by a company through issuing bonds.

Equity Method

A method of accounting for investments in which the investing company records the investment at original cost and subsequently adjusts the carrying amount to reflect its share of the net profits or losses of the investee.

Goodwill

An intangible asset that represents the excess of purchase price over the fair value of identifiable net assets of an acquired business.

Acquisition Differential

The disparity between what was paid to acquire a company and the net worth of its clearly identified assets adjusted for their fair market value.