Which of the Following Statements Is Correct with Regard to Investments

question 39

Multiple Choice

Which of the following statements is correct with regard to investments and the statement of cash flows?

• A)When the equity method is used to account for an investment in a company's common stock, the reported share of affiliate net income must be added to net income in the operating activities section of the statement of cash flows.
• B)When the equity method is used to account for an investment in a company's common stock, the cash dividends received are a cash inflow from investing activities.
• C)Any realized or unrealized gains or losses that were reported on the income statement under the fair value method of accounting for investments must be removed from net income in the operating activities section of the statement of cash flows.
• D)When the equity method is used to account for an investment in a company's common stock, the reported share of affiliate dividends must be deducted from net income in the operating activities section of the statement of cash flows.

---

Definitions:

Income Before Tax

A company's earnings before any taxes are applied, reflecting the profitability of the business from its operations.

Interest Expense

The cost incurred by an entity for borrowed funds, typically stated as an annual rate.

Inventory Turnover

A financial ratio that measures the number of times inventory is sold or used over a given period, indicating the efficiency of inventory management.

Days' Sales

Days' sales, often used in the context of days' sales outstanding (DSO), measures the average number of days that a company takes to collect revenue after a sale has been made.