Flannery Company uses a worksheet to prepare its statement of cash flows.The company also uses the indirect method for the Operating Activities section of its statement.For each of the following changes in the balance sheet, indicate what activity it affects and whether it is an addition or deduction.
-Income taxes payable increased
A)Deducted from Operating activity
B)Added to Operating activity
C)Deducted from Investing activity
D)Added to Investing activity
E)Deducted from Financing activity
F)Added to Financing activity

Question

Quizplus · Accepted Answer

An increase in income taxes payable indicates that not all of the taxes have been paid in cash, which means the cash expense is lower than the income statement expense. Therefore, it is added back to net income in the Operating Activities section when using the indirect method.

Flannery Company Uses a Worksheet to Prepare Its Statement of Cash