C Correct because the indirect method shows how cash flow from operations can be obtained from reported net income as the result of a series of adjustments. The indirect format begins with net income. To reconcile net income with operating cash flow, adjustments are made for non-cash items, for non-operating items, and for the net changes in operating accruals. As such, amortization of bond premium is a non-cash item which is subtracted from net income, gain on sale of assets is a non-operating item which is subtracted from net income, increase in deferred income tax liability is added back to net income, and increase in unearned revenue is a net change in an operating accrual which is added back to net income: –2,000 – 1,000 + 6,000 + 4,000 = 7,000.
