Quiz: Homework - Chapter 13 his Question: 1 pt This Quiz 5 pts p Breakneck Creek
ID: 2437208 • Letter: Q
Question
Quiz: Homework - Chapter 13 his Question: 1 pt This Quiz 5 pts p Breakneck Creek Corporation is preparing its statement of cash flows (indirect method) for the past year. Listed below are items used in preparing the company)s statement of cash flows Specify how each item would be treated on Breakneck Creek Corporation's statement of cash flows by using the follwing abbreviations 1. Operating activity addition to net income (o-) 2. Operating acti 3. Financing activity (F) 4. Investing activity () 5. Activity that is not on the statement of cash fows (NA) from net income (O-) Decna wwntory ? b. Increase in accounts receivable c. Repayment of long-term loan d. Loss on sale of building .Payment of dividends to stockholders .Increase in accounts payable Choose from any drop-down list and then continue to the next question.Explanation / Answer
a) Decrease in Inventory = O+
Inventory is a current asset and decrease in current asset results in increase in operating cash flows, therefore decrease in inventory is added to net income for calculating operating cash flows.
b) Increase in accounts receivable = O-
Accounts receivable is also a current asset and increase in current asset results in decrease in operating cash flows, therefore increase in accounts receivable is deducted from net income.
c) Repayment of long term loan = F
Loan is used for financing the business and is a part of financing activity.
d) Loss on sale of building = O+
It is a part of investing activity thus added back to net income under indirect method to reduce its effect.
e) Payment of dividends to stockholders = F
Stockholders are part of financing activity.
f) Increase in accounts payable = O+
Accounts payable is a current liability and increase in current liability increase the cash flows thus it will be added to net income.
g) Net Income = NA
h) Depreciation expense = O+
Depreciation is a non cash expense and thus added to net income to reduce its effect.
i) Retained Earnings = NA
k) Gain on sale of land = O-
It is a part of investing activity thus reduced from net income under operating activity to remove its effect.
l) Sale of common stock = F
Common Stock is a part of financing activity.
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