Assume the Indirect Method Is Used to Compute Net Cash

question 142

Multiple Choice

Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Increase in Accrued Liabilities-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:

Equity Method

An accounting technique used by companies to record their investments in other companies, where the investment gives the investor significant influence over the investee, but not control or full ownership.

Additional Paid-in Capital

The excess amount over the par value that shareholders pay when shares are issued, recorded in the equity section of the balance sheet.