A Company Uses the Indirect Method to Prepare the Statement

question 20

Multiple Choice

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

• A)The decrease of $19,000 will be subtracted from net income.
• B)The decrease of $19,000 will be subtracted from cost of goods sold.
• C)The decrease of $19,000 will be added to cost of goods sold.
• D)The decrease of $19,000 will be added to net income.

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Definitions:

Foreign Exchange Market

A global decentralized or over-the-counter market for trading currencies, facilitating international trade and investment.

Peg

Fixing the exchange rate of a currency by linking it to another currency or basket of currencies.

Fixed Exchange Rates

A currency system where the value of a country's currency is pegged to another currency, a basket of currencies, or a commodity like gold, minimizing fluctuations in exchange rates.

International Monetary Reserves

International monetary reserves are assets held by central banks or monetary authorities in various forms, such as foreign currencies, gold, and Special Drawing Rights (SDRs), used to back the currency and support economic policies.