The statement of cash flows for ABC, Inc. is contained in the Appendix. Refer to this statement and answer the following questions:

State whether the amounts in the statement reflect an increase or decrease in the following accounts during 2016. (2.25 points)

i.Inventories

ii.Accounts receivable, net and other

iii.Accounts payable

What was the largest non-cash expense during 2016 and explain why this amount is added to Net income for the period when determining Cash flow provided by operating activities. (1.5 points)

APPENDIX

ABC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

	Year Ended December 31,
	2014				2015				2016
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	$	8,658			$	14,557			$	15,890
OPERATING ACTIVITIES:
Net income (loss)	(241		)		596				2,371
Adjustments to reconcile net income (loss) to net cash from operating activities:
Depreciation of property and equipment, including internal-use software and website development, and other amortization, including capitalized content costs	4,746				6,281				8,116
Stock-based compensation	1,497				2,119				2,975
Other operating expense, net	129				155				160
Other expense (income), net	59				250				(20		)
Deferred income taxes	(316		)		81				(246		)
Excess tax benefits from stock-based compensation	(6		)		(119		)		(829		)
Changes in operating assets and liabilities:
Inventories	(1,193		)		(2,187		)		(1,426		)
Accounts receivable, net and other	(1,039		)		(1,755		)		(3,367		)
Accounts payable	1,759				4,294				5,030
Accrued expenses and other	706				913				1,724
Additions to unearned revenue	4,433				7,401				11,931
Amortization of previously unearned revenue	(3,692		)		(6,109		)		(9,976		)
Net cash provided by (used in) operating activities	6,842				11,920				16,443
INVESTING ACTIVITIES:
Purchases of property and equipment, including internal-use software and website development, net	(4,893		)		(4,589		)		(6,737		)
Acquisitions, net of cash acquired, and other	(979		)		(795		)		(116		)
Sales and maturities of marketable securities	3,349				3,025				4,733
Purchases of marketable securities	(2,542		)		(4,091		)		(7,756		)
Net cash provided by (used in) investing activities	(5,065		)		(6,450		)		(9,876		)
FINANCING ACTIVITIES:
Excess tax benefits from stock-based compensation	6				119				829
Proceeds from long-term debt and other	6,359				353				621
Repayments of long-term debt and other	(513		)		(1,652		)		(354		)
Principal repayments of capital lease obligations	(1,285		)		(2,462		)		(3,860		)
Principal repayments of finance lease obligations	(135		)		(121		)		(147		)
Net cash provided by (used in) financing activities	4,432				(3,763		)		(2,911		)
Foreign currency effect on cash and cash equivalents	(310		)		(374		)		(212		)
Net increase (decrease) in cash and cash equivalents	5,899				1,333				3,444
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	14,557			$	15,890			$	19,334