Which of the Following Statements Is Incorrect Regarding Preparing a Statement

question 140

Multiple Choice

Which of the following statements is incorrect regarding preparing a statement of cash flows using the direct method?

• A) The direct method shows adjustments to net income.
• B) The direct method shows the specific sources and uses of cash that are associated with operating activities.
• C) Noncash expenses, gains, and losses are not used in the determination of net cash flow from operating activities.
• D) A majority of companies use the indirect method rather than the direct method.

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Definitions:

Common Equity

The amount of ownership in a corporation that is held by common shareholders, represented by common stock.

Leverage

The use of borrowed capital or financial instruments to increase the potential return of an investment.

Equity Financing

The process by which a company raises capital through the sale of shares.

Depreciation

A method of allocating the cost of a tangible asset over its useful life.