Use the Selected Data from the Consolidated Statements of Cash

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The Answer is (A)Under the indirect method,net income must be adjusted for the change in the current accounts (other than cash).The positive amounts indicate that for both of the years,the year-end balances for accounts payable and accrued liabilities have increased over that of the previous year.It is added to net income because this means that some of its expenses were not paid in cash by the end of each year.
(B)Companies such as College employ various cash management techniques.Cash balances are often kept to a minimum,and excess funds temporarily invested to generate interest income.Very short-term temporary investments might qualify as cash equivalents,but any temporary investment of more than 90 days would not.Such investments would be included in College's current assets that are not shown here.Another factor is the nature of College's business.For the two years,it has generated approximately $9 million in net cash from operating activities.This would indicate that it has a fairly steady cash flow,and therefore may not have to keep large amounts on hand.This has allowed College to make additional long-term investments to grow its business as shown by the net cash used by investing activities.

Use the Selected Data from the Consolidated Statements of Cash

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