The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations under the indirect method depends on the nature of its operations.Capital-intensive firms will likely show a substantial
A)addback to net income for depreciation expense.
B)subtraction from net income for depreciation expense.
C)addback to net income for capital expenditures.
D)subtraction from net income for capital expenditures.
E)subtraction from retained earnings for depreciation expense.

Question

Quizplus · Accepted Answer

Capital-intensive firms typically have significant depreciation expenses due to their heavy investment in noncurrent assets. In the indirect method of cash flow calculation, depreciation expense, a non-cash charge, is added back to net income to adjust for the fact that it reduced net income but did not involve an outflow of cash.

The Extent to Which a Firm Adjusts Net Income for Changes