Using the Indirect Method to Calculate Net Cash Provided (Or

question 107

Multiple Choice

Using the indirect method to calculate net cash provided (or used) by operating activities,which of the following is subtracted from net income?

• A) Depreciation expense.
• B) Amortization of intangible assets.
• C) Decrease in income taxes payable.
• D) Bad debts expense.
• E) None of these answers is correct.

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Definitions:

Contribution Margin Ratio

The percentage of sales that exceeds variable production costs, indicating how much of each sales dollar is available to cover fixed costs and generate profit.

Variable Expenses

Expenses that vary directly with changes in business activities or production levels, similar to variable costs, including items like shipping fees and sales commissions.

Contribution Margin Ratio

The percentage of each sales dollar that remains after variable costs are subtracted, contributing to covering fixed costs and generating profit.

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, such as rent, insurance, and property taxes.