Prepaid Expenses:

Ending Balance $12,000

Beginning Balance $10,000

The company's net income (loss) for the year was ($3,000) and its cash dividends were $3,000. It did not sell or retire any property, plant, and equipment during the year. The company uses the indirect method to determine the net cash provided by operating activities.

Which of the following is correct regarding the operating activities section of the statement of cash flows?

A)The change in Prepaid Expenses will be added to net income; the change in Income Taxes Payable will be subtracted from net income

B)The change in Prepaid Expenses will be subtracted from net income; the change in Income Taxes Payable will be subtracted from net income

C)The change in Prepaid Expenses will be subtracted from net income; the change in Income Taxes Payable will be added to net income

D)The change in Prepaid Expenses will be added to net income; the change in Income Taxes Payable will be added to net income