Distinguish Between the Indirect Method and the Direct Method for Reporting

question 129

Essay

Distinguish between the indirect method and the direct method for reporting net cash flows from operating activities.Which method is more common in practice? Which method provides a more logical presentation of cash flows?

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Definitions:

Unamortized Premium

The portion of the bond premium that has not yet been amortized or allocated as an expense over the bond's life.

Straight-Line Method

A depreciation method that allocates an equal portion of the initial cost of an asset to each accounting period over its useful life.

Amortization

The process of gradually writing off the initial cost of an asset over a period.

Bondholders

Investors or entities that hold debt securities, especially bonds, issued by corporations or governments, entitling them to interest payments and the return of principal.