5) Each year, Smith Enterprises (SE) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2016 income statement, SE reported a $40,000 loss on the sale of equipment. In its reconciliation schedule, SE should:

		a)Show a $40,000 positive adjustment to net income under the indirect method.
		b) Report a $40,000 cash outflow for the direct method.
		c)Show a $40,000 negative adjustment to net income under the indirect method.
	d)	Show a $40,000 negative adjustment to net income under the indirect method and also show the $40,000 positive inflow under investing.

6)Each year, Smith Enterprises (SE) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases.

In its 2016 income statement, SE reported $58,000 for insurance expense. SE paid $72,000 in insurance premiums during 2016. In its reconciliation schedule, SE should:

a)Show a $14,000 negative adjustment to net income under the indirect method for the increase in prepaid insurance.

b)Show a $14,000 positive adjustment to net income under the indirect method for the decrease in prepaid insurance.

c)Show a $14,000 positive adjustment to net income under the indirect method for the increase in prepaid insurance.

d)Show a $14,000 negative adjustment to net income under the indirect method for the decrease in prepaid insurance.

7)Which of the following statements characterizes an operating lease?

a)The lessee has an option to purchase the leased assets and is reasonably sure to exercise the option.

b)The lessor transfers title at the end of the lease term.

c)The lessee reports cash outflows as financing activities.

d)The lessor records depreciation and lease revenue.

8)For a finance lease, an amount equal to the present value of the lease payments should be recorded by the lessee as a(n):

		a)Expense.
		b)Asset and a different amount should be recorded as a liability.
		c)Liability and a different amount should be recorded as an asset.
		d)Asset and a liability.