Answer (C) is correct . The increase in the equity-based investment reflects the investor’s share of the investee’s net income after adjustment for dividends received. Hence, this increase is a noncash revenue and should be subtracted in the reconciliation of net income to net operating cash inflow. A major repair provides benefits to more than one period and therefore should not be expensed. One method of accounting for a major repair is to charge accumulated depreciation if the useful life of the asset has been extended, with the offsetting credit to cash, a payable, etc. However, the cash outflow, if any, is from an investing activity. The item has no effect on net income and no adjustment is necessary. Amortization of bond premium means that interest expense is less than cash paid out for interest, and should be subtracted in the reconciliation. The increase in the deferred tax liability is a noncash item that reduces net income and should be added in the reconciliation. Accordingly, net cash provided by operations is $144,900 ($150,000 – $5,500 – $1,400 + $1,800).
Answer (A) is incorrect because This amount results from omitting the adjustment for the equity-based investment.
Answer (B) is incorrect because This amount results from omitting the adjustment for the equity-based investment and improperly subtracting the decrease in accumulated depreciation.
Answer (D) is incorrect because This amount results from improperly subtracting the decrease in accumulated depreciation.
|
In Metro’s current cash flow statement, the reported net cash provided by operating activities should be
