The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

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Answer 1

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Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

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If the balance in Prepaid Expenses increased during theyear, what action should be taken on the statement of cashflows when following the indirect method, and why?a. The change in the account balance should be subtractedfrom net income because the net increase in PrepaidExpenses did not impact net income but did reduce thecash balance.b. The change in the account balance should be added to netincome because the net increase in Prepaid Expenses didnot impact net income but did increase the cash balance.c. The net change in Prepaid Expenses should be subtractedfrom net income to reverse the income statement effectthat had no impact on cash.d. The net change in Prepaid Expenses should be added tonet income to reverse the income statement effect thathad no impact on cash.

Of the following questions, which one would not be answered by thestatement of cash flows? A. Where did the cash come from during the period? B. What was the cash used for during the period? C. Were all the cash expenditures of benefit to the company during the period? D. What was the change in the cash balance during the period?

If the balance in prepaid expensel increases during the year, what action should be taken on the statement of cash flows when following the indirect method, and why? O The net change in prepaid expenses should be subtracted from net income, because the net increase in prepaid expenses impacted net income but did not reduce the cash balance. The net change in prepaid expenses should be added to net income, because the net increase in prepaid expenses impacted net income but did not increase the cash balance. O The net change in prepaid expenses should be added to net income, because the net increase in prepaid expenses did not impact net income but did increase the cash balance. The net change in prepaid expenses should be subtracted from net income, because the net increase in prepaid expenses did not impact net income but did reduce the cash balance None of the above.

Answer 2

Question

Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

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Answer 3

Question

Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

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Answer 4

Question

Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

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Answer 5

Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

Answer 6

Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

Answer 7

Chapter 12, Problem 4MC

To determine

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

Answer 8

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Answer 9

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Answer 10

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Answer 11

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The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

Solution Summary: The author explains that the change in the account balance should be subtracted to net income because the net increase in prepaid expense does not impact income but it does reduce the cash balance.

To identify: The action that should be taken on the statement of cash flows when following the indirect method, if the balance in Prepaid Expenses increases during the year and also explain the reasons.

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Chapter 12 Solutions