Krech Corporation's comparative balance sheet appears below: The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.Which of the following is correct regarding the operating activities section of the statement of cash flows? Garrison 16e Rechecks 2017-12-19
A) The change in Accounts Receivable will be subtracted from net income; The change in Inventory will be added to net income
B) The change in Accounts Receivable will be added to net income; The change in Inventory will be subtracted from net income
C) The change in Accounts Receivable will be added to net income; The change in Inventory will be added to net income
D) The change in Accounts Receivable will be subtracted from net income; The change in Inventory will be subtracted from net income

Question

Krech Corporation's comparative balance sheet appears below:  The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.Which of the following is correct regarding the operating activities section of the statement of cash flows? Garrison 16e Rechecks 2017-12-19
A) The change in Accounts Receivable will be subtracted from net income; The change in Inventory will be added to net income 
B) The change in Accounts Receivable will be added to net income; The change in Inventory will be subtracted from net income 
C) The change in Accounts Receivable will be added to net income; The change in Inventory will be added to net income 
D) The change in Accounts Receivable will be subtracted from net income; The change in Inventory will be subtracted from net income

Quizplus · Accepted Answer

In the indirect method of determining net cash provided by operating activities, changes in accounts receivable and inventory are adjusted. An increase in accounts receivable is subtracted from net income, and a decrease in accounts receivable is added to net income. The opposite is true for changes in inventory; an increase is added to net income, and a decrease is subtracted from net income. Therefore, the change in accounts receivable will be added to net income, and the change in inventory will be subtracted from net income. Choice B is the only option that reflects this.

Krech Corporation's Comparative Balance Sheet Appears Below: the Company's