16

For questions 16 and 17, use the following information: A company made the following wage entries during the year: (1) To record the purchase of an investment in common stock Investment in common stock 300,000 Cash 300,000 (2) To recognize investment income during the year Investment in common stock 60,000 Investment revenue 60,000 (3) To record dividends received on the investment Cash 20,000 Investment in common stock 20,000 16. If the company will present its Statement of Cash Flows using the indirect method for operational activities, the effect of these transactions on the presentation of operational activities will be: to. There will be no effect on operational activities b. Dividends received, $ 20,000, are added to net income C. The excess of income recognized over dividends is subtracted from net income. received, $ 40,000 d. $ 280,000 ($ 300,000 - $ 20,000) is subtracted from net income. 17. Refer to the previous question. Assume that the company you will present uses the direct method for operational activities. The effect of these transactions on the presentation of operational activities will be: a. None, they are not presented in operational activities b. A cash inflow of $ 20,000 is presented C. A cash inflow of $ 60,000 is presented d. A cash inflow of $ 40,000 is presented