Assume the Indirect Method Is Used to Compute Net Cash

question 88

Multiple Choice

Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Loss on Sale of Investment-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:

• A) Add to net income to arrive at net cash flows from operating activities
• B) Subtract from net income to arrive at net cash flows from operating activities
• C) Not used to adjust net income to calculate net cash flows from operating activities

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Definitions:

Current Ratio

A financial ratio indicating how well a company can settle short-term debts with its available assets.

Total Assets

The total of all properties a company owns, encompassing both short-term and long-term assets.

Liquidity

The ability of an asset to be converted into cash quickly without significantly affecting its price.

Solvency

The ability of a company to meet its long-term financial commitments and continue its operations.