The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations depends on the nature of its operations._____ will likely show a substantial addback to net income for depreciation expense, whereas _____will show a smaller amount.
A)Service firms; firms that decrease in size
B)Service firms; firms that increase in size
C)Firms that decrease in size; firms that increase in size
D)Service firms; capital-intensive firms
E)Capital-intensive firms; service firms

Question

Quizplus · Accepted Answer

Capital-intensive firms, which invest heavily in physical assets like machinery and equipment, will likely show a substantial addback to net income for depreciation expense because these assets depreciate over time. Service firms, which rely less on physical assets and more on human capital, will show a smaller amount because they have fewer noncurrent assets that depreciate.

The Extent to Which a Firm Adjusts Net Income for Changes