The extent to which a firm adjusts net income for changes in noncurrent assets and noncurrent liabilities in deriving cash flow from operations under the indirect method depends on the nature of its operations Firms that grow or diversify by acquiring minority ownership positions in other businesses will often show
A)an addition to net income for equity in undistributed earnings.
B)a subtraction from net income for equity in undistributed earnings.
C)an addition to net income for equity in distributed earnings.
D)a subtraction from net income for equity in distributed earnings.
E)a subtraction from retained earnings for equity in undistributed earnings.

Question

Quizplus · Accepted Answer

Under the indirect method of calculating cash flow from operations, equity in undistributed earnings of a minority ownership position is subtracted from net income. This adjustment is made because these earnings are included in net income, but do not result in an actual cash flow to the company.

The Extent to Which a Firm Adjusts Net Income for Changes