Rocket Corporation entered into the following transactions:
The accrual of wages and salaries expense.
The cash sale of equipment for a loss.
The cash payment in advance for a one-year insurance policy.
Which of the following statements is correct with respect to determining Rocket's cash flows from operating activities on the statement of cash flows?
A)The accrual of wages and salaries expense is deducted from net income.
B)The loss on the equipment sale is deducted from net income.
C)The cash payment to purchase the insurance policy is deducted from net income.
D)The accrual of wages and the equipment loss are both deducted from net income.

Question

Rocket Corporation entered into the following transactions:
 The accrual of wages and salaries expense.
 The cash sale of equipment for a loss.
 The cash payment in advance for a one-year insurance policy.
Which of the following statements is correct with respect to determining Rocket's cash flows from operating activities on the statement of cash flows?
A)The accrual of wages and salaries expense is deducted from net income.
B)The loss on the equipment sale is deducted from net income.
C)The cash payment to purchase the insurance policy is deducted from net income.
D)The accrual of wages and the equipment loss are both deducted from net income.

Quizplus · Accepted Answer

The purchase of the insurance policy creates a deferral which is not reported in net income. Therefore the cash payment is deducted from net income.

Rocket Corporation Entered into the Following Transactions