Amounts that would be classified as a current liability are
Stock Options with exercise date of six months |
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Dividends declared payable in stock during next month |
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Debt due in nine months with long-term refinancing approved at due date |
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Principal payments due over the next year on a 30-year mortgage |
An increase in inventory is included within a statement of cash flows computed on the indirect method by:
Adding the increase to net income |
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Subtracting the increase from net income |
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Adding the increase to cost of goods sold in determining cash to vendors |
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Subtracting the increase from cost of goods sold in determining cash to vendors |
Requirement 1:
Answer: Dividends declared payable in stock during next month
Explanation:
1. Dividend is payable next month so it is considered as current liabilities
2. Stock options is an expense so it is not a current liability
3. Debt is refinanced on its due date so it is considered under non-current liability
4. principal payments due is over next year is on a 30 year mortgage so it is considered as non current liabilities
Requirement 2:
Answer: Subtracting the increase from net income
Explanation:
1. Increase in inventory is due purchases which results in cash outflow
2. Hence it is substracted from net income under changes in operating assets and liabilities computed under indirect method of cash flow
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