Assume the Indirect Method Is Used to Compute Net Cash

question 94

Multiple Choice

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

Stock Options

Financial instruments granted by a company to its employees as a form of incentive that give the right, but not the obligation, to buy company shares at a predetermined price.

Organizational Objectives

Organizational objectives are specific, measurable goals that an organization aims to achieve within a set timeframe to guide its operations and strategic direction.

Profit-sharing Plans

A type of incentive plan where employees receive a portion of the company's profits, typically allocated based on the company's earnings over a set period.

Net Profits

The remaining amount of revenue after all operating expenses, taxes, and interest are deducted; a key indicator of a company's financial health.