Platt Company Prepares Its Statement of Cash Flows Using the Indirect

question 60

Essay

Platt Company prepares its statement of cash flows using the indirect method. Indicate whether each of the items below would be added to (+) or deducted from (-) net income to determine net cash flows from operating activities.
_____ 1. Decrease in Inventory
_____ 2. Decrease in Accounts Payable
_____ 3. Depreciation Expense
_____ 4. Loss on Disposal of Truck
_____ 5. Increase in Accounts Receivable
_____ 6. Increase in Wages Payable
_____ 7. Amortization Expense
_____ 8. Increase in Prepaid Rent
_____ 9. Gain on Sale of Land
_____ 10. Increase in Income Taxes Payable

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Definitions:

Direct Financing Lease

A type of lease where the lessor effectively finances the leased asset, and the lease payments are structured to cover the original cost plus a profit margin.

Sales-Type Lease

A lease agreement where the lessor earns interest income over the lease term, treating the transaction like a sale.

Dealer Profit

The margin or financial gain a dealer achieves from the buying and selling of products or securities.

Unearned Interest Income

It is the interest earned on investments or loans that has been recorded but not yet received in cash.