When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment of depreciation expense?

When using the indirect method to complete the cash flows from operating activities section, what is the proper treatment of depreciation expense?

Multiple Choice

Disregard depreciation expense because it is a noncash expense.


Subtract depreciation expense from net income.


Add depreciation expense to net income. Correct

Disregard depreciation expense because it relates to an investing activity.


Answer
Add depreciation expense to net income. Correct


Explanation
The calculation of accrual-based net income frequently includes noncash expenses such as depreciation expense. Since noncash expenses are deducted in determining net income, they must be added back to the amount of net income when computing net cash flow from operating activities.

The following partial balance sheet is provided for Groome Company:


What is the company's debt to assets ratio?
Multiple Choice

16%


34% Correct

49%


Cannot be determined with the information given.
Answer
 34% Correct
Explanation
Recall that total assets equal total liabilities and stockholders’ equity.
Debt to assets = Total liabilities ÷ Total assets
Debt to assets = ($9,500 + $13,400 + $20,000) ÷ $127,900 = $42,900 ÷ $127,900 = 34%

Answer