Deferred income tax expense resulting from temporary differences related to depreciation of plant assets should be presented in a statement of cash flows (using indirect approach for operating activities) as a(n)
A. Noncash financing and investing activity reported in a separate schedule.
B. Financing activity.
C. Deduction from net income.
D. Addition to net income.
Answer:D
This answer is correct. When using the indirect approach to determine cash flows from operating activities, noncash deductions from net income should be added back to determine cash flows from operating activities. Since the deferred income tax expense did not use cash but was subtracted in determining net income, it is proper to add it back to net income in cash flows from operating activities.