When the direct method is used to determine the net cash flow from operating activities,the following adjustments must be made to interest expense to determine total interest payments:
A)add all changes in interest payable.
B)add decreases in interest payable and subtract increases in interest payable.
C)add increases in interest payable and subtract decreases in interest payable.
D)subtract all changes in interest payable.

Question

Quizplus · Accepted Answer

According to the direct method, the adjustments that need to be made to interest expense to determine total interest payments include adding decreases in interest payable and subtracting increases in interest payable. This is because a decrease in interest payable means that the company has made a payment towards their interest obligation, while an increase in interest payable means they owe more interest. Adding the former and subtracting the latter gives us the total interest payments made during the period.

When the Direct Method Is Used to Determine the Net