How does the recognition of depletion expenseaffect the financial statements?
A)Decreases assets and stockholders' equity and decreases cash flow from investing expenses under the direct approach.
B)Decreases cash flow from operating activities, but does not affect the amount of total assets.
C)Increases assets, stockholders' equity, and cash flow from operating activities.
D)Decreases assets and stockholders' equity, but does not affect cash flow.

Question

Quizplus · Accepted Answer

Recognizing depletion expense decreases the value of the natural resources asset (which is included in total assets) and also reduces stockholders' equity. However, it does not affect cash flow because it is a non-cash expense.

How Does the Recognition of Depletion Expenseaffect the Financial Statements