Indicate whether each of the following would be added to or deducted from net income in...

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 prepaid expenses
b.	Amortization of patents
c.	Increase in salaries payable
d.	Gain on sale of fixed assets
e.	Decrease in accounts receivable
f.	Increase in notes receivable due in 60 days
g.	Amortization of discount on bonds payable
h.	Decrease in merchandise inventory
i.	Depreciation of fixed assets
j.	Loss on retirement of long-term debt
k.	Decrease in accounts payable
l.	Increase in notes payable due in 30 days
m.	Increase in income taxes payable

Expert Solution

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:
Event	Items	Answer	Remarks
a.	Increase in prepaid expenses	Deducted	Prepaid expenses is a current asset. Increase in current assets would be reduce the operating cash flows.
b.	Amortization of patents	Added	Amortization of patents is non-cash expense. Therefore, It is added to the operating cash flows.
c.	Increase in salaries payable	Added	Salary payable is a current liability. Increase in current liability would be increase the operating cash flows.
d.	Gain on sale of fixed assets	Deducted	Gain on sale of fixed assets is non-operating income. Therefore, This is deducted from the operating cash flows
e.	Decrease in accounts receivable	Added	Accounts receivable is a current asset. Decrease in current assets would be increase the operating cash flows.
f.	Increase in notes receivable due in 60 days	Deducted	Notes receivable due in 60 days is a current asset. Increase in current assets would be reduce the operating cash flows.
g.	Amortization of discount on bonds payable	Added	Amortization of discount on bonds payable is non-cash expense. Therefore, It is added to the operating cash flows.
h.	Decrease in merchandise inventory	Added	Merchandise inventory is a current asset. Decrease in current assets would be increase the operating cash flows.
i.	Depreciation of fixed assets	Added	Depreciation of fixed asset is non-cash expense. Therefore, It is added to the operating cash flows.
j.	Loss on retirement of long-term debt	Added	Loss on retirement of long-term debt is non-operating loss. Therefore, This is added to the operating cash flows
k.	Decrease in accounts payable	Deducted	Accounts payable is a current liability. Decrease in current liability would be decrease the operating cash flows.
l.	Increase in notes payable due in 30 days	Added	Notes payable due in 30 days is a current liability. Increase in current liability would be increase the operating cash flows.
m.	Increase in income taxes payable	Added	Income taxes payable is a current liability. Increase in current liability would be increase the operating cash flows.

ekkarill92 answered 2 years ago

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