Walker Corporation reported total operating expenses of $120,000 on the income statement.During the year, accounts payable increased by $7,000, accrued liabilities increased by $5,000, prepaid expenses decreased by $1,000, and inventory increased by $10,000.Walker uses the direct method to determine the net cash provided by operating activities on the statement of cash flows.What is the amount of operating expenses adjusted to a cash basis?
A)$114,000
B)$116,000
C)$120,000
D)$124,000

Question

Quizplus · Accepted Answer

To adjust operating expenses to a cash basis, we consider changes in related balance sheet accounts. An increase in accounts payable ($7,000) and accrued liabilities ($5,000) means less cash was paid, so we subtract these from operating expenses. A decrease in prepaid expenses ($1,000) means more cash was paid, so we add this. The change in inventory does not affect operating expenses. Thus, $120,000 - $7,000 - $5,000 + $1,000 = $114,000.

Walker Corporation Reported Total Operating Expenses of $120,000 on the Income