Answer (B) is correct . The indirect method reconciles the net income of a business with the net operating cash flow. The indirect method removes the effects of all past deferrals of operating cash receipts and payments, all accruals of expected future operating cash receipts and payments, and all items not affecting operating cash flows to arrive at the net cash flow from operating activities. Hence, the amortization of the premium on bonds payable is deducted from net income in the reconciliation because it represents a noncash decrease in interest expense (an increase in net income).
Answer (A) is incorrect because An increase in accrued liabilities reflects an increase in noncash expenses and is added to net income.
Answer (C) is incorrect because A loss on the sale of plant assets is from an investing activity. Thus, it should be added to net income to determine net operating cash flow.
Answer (D) is incorrect because Depreciation is a noncash expense that should be added to net income.
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