Question

Amounts that would be classified as a current liability are Stock Options with exercise date of...

Amounts that would be classified as a current liability are

Stock Options with exercise date of six months

Dividends declared payable in stock during next month

Debt due in nine months with long-term refinancing approved at due date

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

Subtracting the increase from net income

Adding the increase to cost of goods sold in determining cash to vendors

Subtracting the increase from cost of goods sold in determining cash to vendors
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Answer #1

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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