Answer (C) is correct . The purchase of land and a building in exchange for a long-term note is a noncash investing activity that does not affect net income. Thus, it is reported in the related disclosures section of the cash flow statement but is not a reconciling item.
Answer (A) is incorrect because A decrease in inventory is a reconciling item. It indicates that cost of goods sold exceeded purchases. Purchases is then adjusted for the change in accounts payable to determine cash paid to suppliers.
Answer (B) is incorrect because A decrease in prepaid insurance is a reconciling item. It implies that insurance expense was greater than cash paid to insurers.
Answer (D) is incorrect because An increase in income tax payable is a reconciling item. It means that income tax expense exceeded cash paid for income taxes.
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