Questions: Doodle, Inc. is preparing its statement of cash flows (using the indirect method) for year 20×1. Identify each item below as an operating activity addition to net income; an operating activity subtraction from net income; an investing activity; a financing activity; or an activity that is not used to prepare the cash flows statement. Depreciation expense: [ Select] Purchase of equipment for cash: [ Select ] [ Select ] financing. investing. not used. operating - addition. operating - subtraction.

Doodle, Inc. is preparing its statement of cash flows (using the indirect method) for year 20×1. Identify each item below as an operating activity addition to net income; an operating activity subtraction from net income; an investing activity; a financing activity; or an activity that is not used to prepare the cash flows statement. Depreciation expense: [ Select] Purchase of equipment for cash: [ Select ] [ Select ] financing. investing. not used. operating - addition. operating - subtraction.
Transcript text: Doodle, Inc. is preparing its statement of cash flows (using the indirect method) for year 20×1. Identify each item below as an operating activity addition to net income; an operating activity subtraction from net income; an investing activity; a financing activity; or an activity that is not used to prepare the cash flows statement. Depreciation expense: [ Select] Purchase of equipment for cash: [ Select ] [ Select ] financing. investing. not used. operating - addition. operating - subtraction.
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Solution

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To answer the question regarding the classification of items for the statement of cash flows using the indirect method, we need to understand how each item affects the cash flow categories:

  1. Depreciation expense:

    • The answer is: operating - addition.
    • Explanation: Depreciation expense is a non-cash charge that reduces net income. In the indirect method of preparing the statement of cash flows, depreciation is added back to net income in the operating activities section because it does not involve an actual outflow of cash.

  2. Purchase of equipment for cash:

    • The answer is: investing.
    • Explanation: The purchase of equipment for cash is considered an investing activity. It involves the outflow of cash to acquire long-term assets, which is classified under investing activities in the cash flow statement.

In summary, depreciation expense is added back to net income in the operating activities section, while the purchase of equipment for cash is classified as an investing activity.

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