When Preparing the Statement of Cash Flows Using the Indirect

question 101

Multiple Choice

When preparing the statement of cash flows using the indirect method,which statement is FALSE?

• A)Gains on the sale of long-term assets are subtracted from net income.
• B)Losses on the sale of long-term assets are subtracted from net income.
• C)Depreciation expense is added to net income.
• D)Increases in current liabilities are added to net income.

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Definitions:

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums, providing a basis for operational planning.

Operating Profit

Earnings before interest and taxes (EBIT), representing the profit a company makes from its operations after subtracting operating expenses from revenue.

Sales Mix

The proportion of different products or services that make up the total sales of a company.

Unit Contribution Margin

The amount each unit sold contributes to covering fixed costs and generating profit, calculated by subtracting variable costs per unit from the selling price per unit.