1. Why are gains subtracted in the operating activities section of the cash flow statement?

a Because we want to include gains instead in the investing activities section.

b Because gains represents a negative cash flow.

c Because gain doesnt represent an actual cash flow and thus must be subtracted to offset the addition of gain in the net income calculation.

d Because gains represents a positive cash flow.

2. Interest Expense is always considered to be equal to the cash payment for interest.

True

False

3. Why does an increase in taxes payable lead to lower cash payments for income taxes?

a When a company owes more money to the government the government will usually settle for a lower cash payment.

b Increase in taxes payable means the company owes more taxes and so we would reason that it paid less taxes than otherwise.Increased taxes

c payable lead to lower tax rates in the future.Increased taxes payable create a tax shield for the company,

d just like borrowing money does with the interest expense tax deduction.