A-Z Auto Parts Company Uses the Indirect Method to Prepare

question 69

Multiple Choice

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

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Definitions:

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to individual units of production, based on a particular activity (e.g., machine hours, labor hours).

Direct Material Cost

The expense of raw materials and components directly used in the production of a product.

Overhead Rate

A calculation used to allocate overhead costs to produced goods or services, often based on direct labor hours or machine hours.

Direct Labor Cost

The wages and related expenses for workers who are directly involved in the production of goods or services.