Krech Corporation's comparative balance sheet appears below:Comparative Balance Sheet Ending BalanceBeginning BalanceAssets: Current assets: Cash and cash equivalents$31,000 $28,000 Accounts receivable 18,000 20,000 Inventory 58,000 56,000 Prepaid expenses 12,000 10,000 Total current assets 119,000 114,000 Property, plant, and equipment 374,000 354,000 Less accumulated depreciation 190,000 165,000 Net property, plant, and equipment 184,000 189,000 Total assets$ 303,000 $ 303,000 Liabilities and stockholders' equity: Current liabilities: Accounts payable$13,000 $9,000 Accrued liabilities 52,000 53,000 Income taxes payable 67,000 69,000 Total current

Question

liabilities 132,000  131,000 Bonds payable 76,000  73,000 Total liabilities 208,000  204,000 Stockholders' equity:        Common stock 28,000  26,000   Retained earnings 67,000  73,000 Total stockholders' equity 95,000  99,000 Total liabilities and stockholders' equity$ 303,000 $ 303,000 The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.Which of the following is correct regarding the operating activities section of the statement of cash flows?

A. The change in Prepaid Expenses will be added to net income; The change in Income Taxes Payable will be subtracted from net income
B. The change in Prepaid Expenses will be subtracted from net income; The change in Income Taxes Payable will be added to net income
C. The change in Prepaid Expenses will be subtracted from net income; The change in Income Taxes Payable will be subtracted from net income
D. The change in Prepaid Expenses will be added to net income; The change in Income Taxes Payable will be added to net income

Answer 1

Answer: C