Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.

-Refer to Exhibit 12-4.How will the change in inventory be reported in the operating activities
A)The decrease of $105,000 will be subtracted from net income.
B)The decrease of $105,000 will be subtracted from cost of goods sold.
C)The decrease of $105,000 will be added to cost of goods sold.
D)The decrease of $105,000 will be added to net income.
E)None of the answer choices is correct.

Question

Exhibit 12-4
Manning Company uses the indirect method to prepare the statement of cash flows.The following amounts are shown in its December 31,2013,financial statements.
 
-Refer to Exhibit 12-4.How will the change in inventory be reported in the operating activities
A)The decrease of $105,000 will be subtracted from net income. 
B)The decrease of $105,000 will be subtracted from cost of goods sold. 
C)The decrease of $105,000 will be added to cost of goods sold. 
D)The decrease of $105,000 will be added to net income. 
E)None of the answer choices is correct.

Quizplus · Accepted Answer

In the operating activities section of the cash flow statement, a decrease in inventory is added to net income because it indicates that less cash was used to purchase inventory, thus increasing cash flow.

Exhibit 12-4 Manning Company Uses the Indirect Method to Prepare the Statement