Holmes Aircraft recently announced an increase in its net income, yet its net cash flow declined relative to last year. Which of the following could explain this performance?
A) The company's interest expense increased.
B) The company's depreciation expense declined.
C) The company's operating income declined.
D) All of the statements above are correct.
E) None of the statements above is correct.

Question

Quizplus · Accepted Answer

An increase in net income may be due to an increase in revenue or a decrease in expenses. However, if the decrease in cash flow is due to a decrease in depreciation expense, it suggests that the company invested in property, plant, and equipment during the year, which reduced cash flow but did not impact net income. Option A is incorrect because an increase in interest expense would decrease net income and cash flow. Option C is incorrect because a decline in operating income would result in a decline in net income and cash flow. Option D is incorrect because not all statements are correct.

Holmes Aircraft Recently Announced an Increase in Its Net Income