Choice "A" is correct. Proprietary funds (internal Service and Enterprise funds) must use the direct method when preparing their statement of cash flows.
Choice "c" is incorrect. Proprietary funds (internal Service and Enterprise funds) must use the direct method when preparing their statement of cash flows. The indirect method is not an option. The direct method is accompanied by a reconciliation of accrual basis operating income to cash flows from operations.
Choice "d" is incorrect. Proprietary funds (internal Service and Enterprise funds) must use the direct method when preparing their statement of cash flows. The indirect method is not an option. The direct method is accompanied by a reconciliation of accrual basis operating income to cash flows from operations. Unlike commercial accounting, there is no reconciliation of the bottom line (the change in net assets) to cash flows from operations.
Choice "b" is incorrect. Proprietary funds (internal Service and Enterprise funds) must use the direct method when preparing their statement of cash flows. There is no other option.