Hey anyone please help me with this question:
Metro, Inc. reported net income of $150,000 for 20X0. Changes occurred in several balance sheet accounts during 20X0 as follows:
1. Investment in Videogold, Inc. stock, carried on the equity basis $5,500 increase
2. Accumulated depreciation, caused by major repair to projection equipment $2,100 decrease
3. Premium on bonds payable $1,400 decrease
4. Deferred income tax liability (long-term) $1,800 increase
In Metro's 20X0 cash flow statement, the reported net cash provided by operating activities should be
(a)$150,400
(b)$148,300
(c)$144,900
(d)$142,800
The correct answer is (c).But im confused with the explanation given for 3rd and 4th adjustment:
3. A decrease in the premium on bonds payable is due to amortization, implies that tactual interest expense subtracted in the net income is lower than the amount paid by $1,400. Net income has to be further deducted to equate to the actual cash paid. Deduct $1,400.
4. An increase in deferred income taxes payable indicates that the income tax expense deducted in calculating net income was more than the sum actually paid. The outflow of cash was lesser than the expense deducted by $1,800 and has to be added back.
Can anyone please explain this.THANKS in advance
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