Willow Industries reported total operating expenses of $160,000 on the income statement.During the year, accounts payable decreased by $8,000, accrued liabilities decreased by $4,000, prepaid expenses increased by $1,000, and accounts receivable decreased by $6,000.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)$143,000
B)$149,000
C)$165,000
D)$162,000

Question

Quizplus · Accepted Answer

To adjust operating expenses to a cash basis, we need to consider changes in related balance sheet accounts. Decreases in accounts payable ($8,000) and accrued liabilities ($4,000) indicate cash payments, while an increase in prepaid expenses ($1,000) also indicates a cash outflow. Therefore, the cash basis operating expenses are $160,000 + $8,000 + $4,000 + $1,000 = $173,000. However, the decrease in accounts receivable ($6,000) does not affect operating expenses directly. Thus, the correct cash basis operating expenses are $165,000.

Willow Industries Reported Total Operating Expenses of $160,000 on the Income