Sub: Economics Topic: FinancialEconomics
Question:
Assume the indirect method is used to compute cash flows from operations. For each item listed below,
indicate the effect on net income in arriving at cash flows from operations by choosing one of the
following code letters.
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Cash Flows from Operating Activities
Add to Net Income A
Deduct from Net Income D
Answer
1. Increase in accounts receivable . . . . . . . . . . . .
2. Increase in inventory . . . . . . . . . . . . . . . . . . . .
3. Decrease in prepaid expenses . . . . . . . . . . . . .
4. Decrease in accounts payable . . . . . . . . . . . . .
5. Increase in accrued liabilities . . . . . . . . . . . . .
6. Increase in income taxes payable . . . . . . . . . .
7. Depreciation expense . . . . . . . . . . . . . . . . . . .
8. Loss on sale of investment . . . . . . . . . . . . . . .
9. Gain on disposal of equipment . . . . . . . . . . . .
10. Amortization expense . . . . . . . . . . . . . . . . . . .
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Sub: Economics Topic: FinancialEconomics
Solution:
1 Increase in accounts receivable D
2 Increase in inventory D
3 Decrease in prepaid expenses A
4 Decrease in accounts payable D
5 Increase in accrued liabilities A
6 Increase in income taxes payable A
7 Depreciation expenses A
8 Loss on sale of investment A
9 Gain on disposal of equipment D
10 Amortization expenses A
** End of the Solution **
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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting
the same in lieu of your academic submissions for grades.