Asked by Jacqueline Segura on May 09, 2024
Verified
Using the indirect method, which of the following would not be an adjustment to net income?
A) depreciation expense
B) an increase in prepaid insurance
C) an increase in inventories
D) an increase in Land
Depreciation Expense
The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.
Prepaid Insurance
An asset account on the balance sheet representing insurance paid in advance that provides coverage over future periods.
Net Income
The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.
- Analyze the effect of non-cash transactions and events on the statement of cash flows.
Verified Answer
EO
Elizabeth OrozcoMay 11, 2024
Final Answer :
D
Explanation :
Depreciation expense, increases in prepaid insurance, and increases in inventories are all adjustments to net income in the indirect method of preparing the cash flow statement because they are non-cash transactions or changes in working capital. However, an increase in land is an investing activity, not an adjustment to net income in the operating section of the cash flow statement.
Learning Objectives
- Analyze the effect of non-cash transactions and events on the statement of cash flows.