1. Crabbe Company reported $80,000 of operating income on its income statement for the past year. The company had depreciation expense and an increase in prepaid expenses for the year. Assuming use of the indirect method, how would these items be handled in converting the accrual based income to the cash basis?

Increase in

Depreciation Prepaid Expenses

a. Deducted From Deducted From

b. Added To Added To

c. Deducted From Added To

d. Added To Deducted From

2. When preparing a statement of cash flows, a decrease in accounts receivable during a period would cause which one of the following adjustments in determining cash flow from operating activities? (Refer to the technique we worked in class for both the direct and indirect method.)

Direct Method Indirect Method

a. Increase Decrease

b. Decrease Increase

c. Increase Increase

d. Decrease Decrease