Which of the following items about the statement of cash flows is correct?
A)Noncash expenses such as depreciation are subtracted from net income when using the indirect method for computing cash flows from operating activities.
B)Cash equivalents are highly liquid investments with maturities at the date of purchase of less than three months.
C)The acquisition of land by issuing bonds payable would not appear on the statement of cash flows.
D)Cash paid for interest would be classified as a financing cash flow.

Question

Quizplus · Accepted Answer

This statement accurately describes cash equivalents, which are defined as highly liquid investments with maturities of three months or less.

Option A is incorrect because noncash expenses such as depreciation are added back to net income when using the indirect method, not subtracted.

Option C is incorrect because the acquisition of land by issuing bonds payable would affect both the investing and financing sections of the statement of cash flows.

Option D is incorrect because cash paid for interest would be classified as an operating cash flow, not a financing cash flow.

Which of the Following Items About the Statement of Cash