Regarding the Direct and Indirect Methods of Preparing the Statement

question 41

Multiple Choice

Regarding the direct and indirect methods of preparing the statement of cash flows, which of the following statements is true?

• A) The indirect method and the direct method will produce a different amount of net cash provided by investing activities.
• B) The indirect method starts with net income and adjusts it to net cash provided by (used for) operating activities.
• C) The direct and indirect methods include different types of cash flows in the investing activities section.
• D) The indirect method includes all non-cash activities, whereas the direct method includes only the cash activities.

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Definitions:

Producer Surplus

The difference between the amount producers are willing to accept for a good or service and the actual amount they receive.

Underproduction

The condition where the output is less than what is economically or socially optimal.

Producer Surplus

The difference between the amount producers are willing to supply goods for and the actual amount they receive by selling them.

Overproduction

The situation where more goods are produced than can be sold, leading to excess supply and often a drop in prices.