Question

The most recent comparative balance sheet of Giacomelli Corporation appears below:

	Ending Balance	Beginning Balance
Assets:
Current assets:
Cash and cash equivalents	$37,000	$29,000
Accounts receivable	20,000	24,000
Inventory	65,000	61,000
Prepaid expenses	5,000	7,000
Total current assets	127,000	121,000
Property, plant, and equipment	424,000	399,000
Less accumulated depreciation	231,000	200,000
Net property, plant, and equipment	193,000	199,000
Total assets	$320,000	$320,000
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$19,000	$17,000
Accrued liabilities	58,000	51,000
Income taxes payable	47,000	42,000
Total current liabilities	124,000	110,000
Bonds payable	77,000	80,000
Total liabilities	201,000	190,000
Stockholders’ equity:
Common stock	31,000	30,000
Retained earnings	88,000	100,000
Total stockholders’ equity	119,000	130,000
Total liabilities and stockholders’ equity	$320,000	$320,000

The company uses the indirect method to construct the operating activities section of its statements of cash flows.

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

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