The Most Recent Comparative Balance Sheet of Giacomelli Corporation Appears

question 80

Multiple Choice

The most recent comparative balance sheet of Giacomelli Corporation appears below: The company uses the indirect method to construct the operating activities section of its statements of cash flows. Which of the following is correct regarding the operating activities section of the statement of cash flows?

• A)The change in Prepaid Expenses will be added to net income;The change in Income Taxes Payable will be subtracted from net income
• B)The change in Prepaid Expenses will be subtracted from net income;The change in Income Taxes Payable will be subtracted from net income
• C)The change in Prepaid Expenses will be subtracted from net income;The change in Income Taxes Payable will be added to net income
• D)The change in Prepaid Expenses will be added to net income;The change in Income Taxes Payable will be added to net income

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Definitions:

Disposable Income

The income left over for personal spending after direct taxes have been subtracted from an individual’s gross income.

Consumption

The use of goods and services by households or individuals, typically relating to spending on products and services.

Permanent Income Hypothesis

A theory suggesting that a person's consumption at a point in time is determined not just by their current income but by their longer-term income expectations.

Consumer Binge

A period characterized by excessive spending and consumption by consumers.