Salem,IncUses the Indirect Method to Prepare Its Statement of Cash

question 5

Multiple Choice

Salem,Inc.uses the indirect method to prepare its statement of cash flows.Salem's Accumulated Depreciation-Trucks account increased during the period.Salem did not purchase or sell trucks during the period.The increase in Accumulated Depreciation-Trucks is:

• A)subtracted from net income to determine net cash provided by operating activities.
• B)added to net income to determine net cash provided by operating activities.
• C)shown as a cash outflow on the investing activities section.
• D)shown as a cash outflow on the financing activities section.

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Definitions:

Ordinary annuity

A regular annuity involves uniform payments disbursed at the end of each period within a set timeframe.

Compounded annually

This term describes the process of calculating interest on both the initial principal and the accumulated interest from previous periods, done once every year.

Rate of inflation

The percentage increase in the general price level of goods and services in an economy over a period of time.

Purchasing power

The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.