Question

The Prepaid Insurance account had a beginning balance of $14,000 and an ending balance of $24,000. How will the increase be reported on the statement of cash flows? The $10,000 increase will be added to the Operating Activities section The $10,000 increase will be subtracted from the Operating Activities section The $10,000 increase will be subtracted from the Investing Activities section The $10,000 increase will be subtracted from the Financing Activities section None of the above

Answer 1

The correct option is b.

Step-by-step explanation:

Given information: In Prepaid Insurance account

Beginning balance = $14,000

Ending balance of $24,000

Change in balance = $24,000 - $14,000 = $10,000

In means the balance of Prepaid Insurance account is increased by $10,000.

In a cash flow statement, operating activities section represents the changes in current assets (except cash) and current liabilities. Prepaid Insurance is a current asset.

A decrease in Prepaid Insurance will be added to the Operating Activities and a increase in Prepaid Insurance will be subtracted from the Operating Activities section.

The $10,000 increase will be subtracted from the Operating Activities section. Therefore the correct option is b.