In a statement of cash flows (indirect method), which of the following are added to net...

In a statement of cash flows (indirect method), which of the following are added to net income to determine net cash flow from operating activities?

Select one:

a. Amortization of Premium on Bond Investments, but not Increase in Prepaid Expenses

b. Increase in Prepaid Expenses, but not Amortization of Premium on Bond Investments

c. Both Amortization of Premium on Bond Investments and Increase in Prepaid Expenses

d. Neither Amortization of Premium on Bond Investments nor Increase in Prepaid Expenses

Solutions

Expert Solution

Answer:

Correct answer is:

a. Amortization of Premium on Bond Investments, but not Increase in Prepaid Expenses

Explanation:

Interest expense includes amortization of Premium on Bond Investments but amortization of Premium on Bond Investments is not a cash outflow. Hence amortization of Premium on Bond Investments has to be added back to net income to determine net cash flow from operating activities.

Increase in Prepaid Expenses is deducted from net income to determine net cash flow from operating activities.

As such option a is correct and other options b, c, and d are incorrect.

ekkarill92 answered 2 years ago

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