The comparative statements of financial position of Greenvale Games, Inc. show a net decrease in unexpired insurance of $400 and a net decrease in interest payable of $250. In order to reconcile profit for the year with net cash from operating activities, profit for the year should be:
A) Increased by $650.
B) Reduced by $650.
C) Increased by $150.
D) Reduced by $150.

Question

Quizplus · Accepted Answer

The net decrease in unexpired insurance ($400) indicates that more cash was paid for insurance than was expensed, so profit should be increased by $400. The net decrease in interest payable ($250) indicates that more cash was paid for interest than was expensed, so profit should be increased by $250. Therefore, the total increase to reconcile profit with net cash from operating activities is $400 + $250 = $650. However, the question asks for the net effect, which is an increase of $150 ($400 - $250).

The Comparative Statements of Financial Position of Greenvale Games, Inc