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Indicate whether each of the following would be added to or deducted from net income in determining net cash flow from operating activities by the indirect method: a. Increase in merchandise inventory b. Increase in prepaid expenses c. Depreciation of fixed assets d. Gain on disposal of fixed assets e. Amortization of patent f. Increase in notes payable due in 120 days to vendors g. Increase in accounts payable h. Decrease in wages payable i. Decrease in notes receivable due in 60 days from customers j. Decrease in accounts receivable k. Loss on retirement of long-term debt

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 4E
Textbook Problem
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Indicate whether each of the following would be added to or deducted from net income in determining net cash flow from operating activities by the indirect method:

  1.        a.            Increase in merchandise inventory
  2.       b.            Increase in prepaid expenses
  3.        c.            Depreciation of fixed assets
  4.       d.            Gain on disposal of fixed assets
  5.        e.            Amortization of patent
  6.         f.            Increase in notes payable due in 120 days to vendors
  7.       g.            Increase in accounts payable
  8.       h.            Decrease in wages payable
  9.         i.            Decrease in notes receivable due in 60 days from customers
  10.         j.            Decrease in accounts receivable
  11.       k.            Loss on retirement of long-term debt

To determine

Indicate each of the given items would be added or deducted from net income in determining net cash flow from operating activities (indirect method).

Explanation of Solution

Cash flows from operating activities: These are the cash produced by the normal business operations.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
 
Add: Decrease in current assets
         Increase in current liability
         Depreciation expense an...

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Chapter 16 Solutions

Financial Accounting
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