Which of the following is reported as a deduction from net income when using the indirect method to determine net cash flows from operating activities?
A) Depreciation expense.
B) Amortization of a patent.
C) Amortization of premium on bonds payable.
D) Dividends declared.

Question

Quizplus · Accepted Answer

Amortization of premium on bonds payable is added back to net income when using the indirect method for calculating net cash flows from operating activities because it is a non-cash expense that had reduced net income. Unlike depreciation and amortization of a patent, which are also non-cash expenses but are added back to net income because they reduce it without affecting cash, amortization of premium on bonds payable is specifically related to the financing activities and adjusts for the fact that it does not impact cash flow from operations. Dividends declared are not a business expense and relate to financing activities, not operating activities.

Which of the Following Is Reported as a Deduction from Net