Question 1 10 pts Under the indirect method, which of the following items would

Question

Question 1 10 pts Under the indirect method, which of the following items would be subtracted from net income to determine the cash flow from operating activities? o Loss on the sale of equipment o Increase in acerued interest payable e Increase in the balance of accounts receivable e Depreciation Expense D | Question 2 10 pts When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment of depreciation expense? Disregard depreciation expense because it is a non-cash expense Add depreciation expense to net income - Disregard depreciation expense because it relates to an investing activity e Subtract depreciation expense from net income D Question 3 10 pts Which method is used by the majority of US companies to report cash flows from operating activities? Accrual method Direct method o Computational method o Indirect method

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Answers

The correct answer is Option 3rd
Increase in the balance of accounts receivables is SUBTRACTED from Net Income.

This is because the treatment is:
Add to Net Income: Decrease in Current Assets or Increase in Current Liability
Less from Net Income: Increase in Current Assets or Decrease in Current Liability.

The correct answer is Option 2nd
Add Depreciation expense to Net Income.

This is because under cash flow statement, ‘’cash flows’’ are to be found out. Depreciation expense is a NON CASH item that has been deducted in Net Income. To cancel this, the Depreciation expense is ADDED BACK to Net Income.

The correct answer is Option 4th
Indirect Method has been used by the majority of the US companies.

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