Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases.
In its 2011 income statement, WME reported $58,000 for insurance expense. WME paid $72,000 in insurance premiums during 2011. In its reconciliation schedule, WME should:
a) show a $14,000 positive adjustment to net income under the indirect method for the increase in prepaid insurance.
b) show a $14,000 negative adjustment to net income under the indirect method for the decrease in prepaid insurance.
c) show a $14,000 negative adjustment to net income under the indirect method for the increase in prepaid insurance.
d) show a $14,000 positive adjustment to net income under the indirect method for the decrease in prepaid insurance.