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. Firms that stop growing or that shrink 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

When firms stop growing or shrink, they often have to subtract deferred tax expense because they are less likely to defer taxes due to reduced future growth expectations.

The Extent to Which a Firm Adjusts Net Income for Changes