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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Section
BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Which item is added to net income when computing cash flows from operating activities?

a. Gain on the disposal of property, plant, and equipment

b. Increase in wages payable

c. Increase in inventory

d. Increase in prepaid rent

Use the following information for Multiple-Choice Questions 11-9 and 11-10:

Cornett Company reported the following information: cash received from the issuance of common stock, $150,000; cash received from the sale of equipment, $14,800; cash paid to purchase an investment, $20,000; cash paid to retire a note payable, $50,000; and cash collected from sales to customers, $225,000.

To determine

Introduction:

The indirect method for the readiness of the announcement of cash streams includes the modification of total compensation with changes in monetary record records to land at the measure of cash generated by operating activities.

To choose:

Which item is added to net income when computing cash flow from operating activities?

Explanation

Explanation for correct answers:

Option (b) Expansion in a current liability account balance implies money has not been paid and, in this way, the increment in the wages payable equalization is added to total compensation.

Explanation for incorrect answers:

Option (a) Gain on the disposal of property plant, and equipment is related to investing activities, because all fixed assets sale and purchased related to the investing activities...

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