Avatar Auto Parts Company Uses the Indirect Method to Prepare

question 2

Multiple Choice

Avatar Auto Parts Company uses the indirect method to prepare the statement of cash flows.Refer to the following section of the comparative balance sheet: $\begin{array}{c}\text {Avatar Company}\\ \text {Comparative Balance Sheet}\\\text {December 31, 2017 and 2016}\\\begin{array}{|l|r|r|r|}\hline& 2017 & 2016 & \text { Increase/(Decrease) } \\ \hline\text { Accounts Payable } & \$ 4,000 & \$ 6,000 & \$(2,000) \\\hline \text { Accrued Liabilities } & 2,000 & 1,000 & 1,000 \\\hline \text { Long-term Notes Payable } & \underline{84,00} & \underline{90,000} & \underline{(6,000) } \\\hline \text { Total Liabilities } & \$ 90,00 & \$ 97,000 & \$(7,000) \\\hline\end{array}\end{array}$
How will the change in Accounts Payable be shown on the statement of cash flows?

• A)as an addition to Net Income
• B)as a deduction from Net Income
• C)as a deduction from investing cash flows
• D)as an addition to operating cash flows

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Definitions:

Annual Dividend

The total dividend payments a company makes to its shareholders in a year.

Required Rate of Return

The required rate of return is the minimum return an investor expects to receive on an investment, considering its risk level.

Dividend Increase

An action by a company to increase the amount of dividends distributed to its shareholders.

Market Rate of Return

The average rate of return that investors expect to earn in the market on an investment, reflecting the risk and liquidity of the asset.