Answer (D) is correct . An increase in prepaid expenses indicates that cash outlays for expenses exceeded the related expense incurred; thus, net income exceeded net cash provided by operations and a deduction is needed in the reconciliation. Also, the amortization of premium on bonds payable causes a reduction of interest expense but does not increase cash; therefore, net income exceeds net cash from operating activities, and a deduction is needed in the reconciliation.
Answer (A) is incorrect because An increase in prepaid expenses would need to be deducted from net income to get cash flow from operations.
Answer (B) is incorrect because An increase in prepaid expenses would need to be deducted from net income to get cash flow from operations.
Answer (C) is incorrect because Amortization of bond premium would be deducted from net income.
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