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:

Cash Flow Statement

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.

Nonfinancial Firms

Companies that primarily deal in products and services rather than financial instruments and markets, such as manufacturing, retail, and technology firms.

Acquisitions

The process by which one company purchases most or all of another company's shares to gain control of that company.

Divestitures

Refers to the process of a company selling off or liquidating parts of its business or assets.