Using the Indirect Method, Decreases in Current Assets and Increases

question 78

Multiple Choice

Using the indirect method, decreases in current assets and increases in current liabilities are both added to net income, whereas increases in current assets and decreases in current liabilities are both subtracted from net income to convert it to net cash flow. Noncash expenses such as depreciation are added back to net income.
$$\begin{array} { | r | r | r | r | r | r | r | } \hline \begin{array} { r } \text { Beginning } \\\text { Cash } \\\text { Balance }\end{array} & \begin{array} { r } \text { Cash flows } \\\text { from } \\\text { Operating } \\\text { Activities }\end{array} & \begin{array} { r } \text { Cash flows } + \\\text { from Investing } \\\text { Activities }\end{array} & \begin{array} { r } \text { Cash Flows } \\\text { From } \\\text { Operating } \\\text { Activities }\end{array} & \begin{array} { r } \text { Ending cash } \\\text { balance }\end{array} \\\hline \$ 11,283 + & \$ 37,042 + & ( \$ 16,831 ) + & ( \$ 26,397 ) = & \$ 5,097 \\\hline\end{array}$$
-A company purchases a $300,000 building,paying $200,000 in cash and signing a $100,000 promissory note.What will be reported on the statement of cash flows as a result of this transaction?

• A)A $300,000 cash outflow for investing activities.
• B)A $200,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.
• C)A $200,000 cash outflow for investing activities.
• D)A $300,000 cash outflow for investing activities and a $100,000 cash inflow is recorded for financing activities.

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Definitions:

Factor Prices

The amounts paid to the factors of production, such as wages for labor, rent for land, and profit for capital.

Production Function

A mathematical framework defining the association between the resources used in production and the output generated.

Factor Prices

The prices paid for the use of factors of production, such as labor, capital, and land, in the production process.

Output Cost

The total expenses incurred in the process of producing goods or services, including both fixed and variable costs.