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.Rapidly growing firms usually
A)show an addback for deferred tax expense.
B)show a subtraction for deferred tax expense.
C)show no adjustments for deferred tax expense.
D)disclose such changes in a supplementary schedule or notes to the financial statements.
E)disclose such changes in managements' discussion and analysis.

Question

Quizplus · Accepted Answer

Rapidly growing firms often have significant amounts of deferred tax expense due to timing differences between financial reporting and tax reporting. In the indirect method of cash flow statement preparation, these deferred tax expenses are added back to net income because they do not involve an actual cash outflow in the current period.

The Extent to Which a Firm Adjusts Net Income for Changes