Statement of cash flows are the statements that helps in determining how the changes in balance sheet and income statement affect the cash and cash equivalents. Operating activities, investing activities and financing activities are the three activities reported on the statement of cash flows. To choose: The correct option.

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Chapter 12, Problem 4MC

To determine

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Statement of cash flows are the statements that helps in determining how the changes in balance sheet and income statement affect the cash and cash equivalents. Operating activities, investing activities and financing activities are the three activities reported on the statement of cash flows.

To choose:

The correct option.

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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.