The Extent to Which a Firm Adjusts Net Income for Changes

question 99

Multiple Choice

The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations. Firms that grow or diversify by acquiring minority ownership positions in other businesses will often show a

• A)addition to retained earnings for distributed earnings.
• B)addition to net income for distributed earnings.
• C)subtraction from net income for equity in undistributed earnings.
• D)addition to net income for equity in undistributed earnings.
• E)subtraction from net income for distributed earnings.

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Definitions:

Materials Price Variance

The difference between the actual cost of direct materials and the expected (standard) cost multiplied by the actual quantity purchased or used.

Labour Rate Variance

The difference between the actual cost of labor and the expected (or standard) cost.

Flexible Budget

A budget that adjusts or flexes with changes in the volume or activity level of a business.