Cridberg Corporation's selling and administrative expenses for last year totaled $260,000. During the year the company's prepaid expense account balance increased by $18,000 and accrued liabilities decreased by $12,000. Depreciation for the year was $25,000. Based on this information, selling and administrative expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:
A) $255,000
B) $315,000
C) $205,000
D) $265,000

Question

Quizplus · Accepted Answer

Under the direct method, non-cash expenses such as depreciation must be added back to the expenses, and changes in prepaid expenses and accrued liabilities must be taken into account. Therefore, the calculation would be:

Selling and administrative expenses = $260,000
Add: Depreciation = $25,000
Adjusted selling and administrative expenses = $285,000
Minus: Increase in prepaid expenses = $18,000
Plus: Decrease in accrued liabilities = $12,000

Selling and administrative expenses on a cash basis = $285,000 - $18,000 + $12,000 = $265,000. Therefore, the correct answer is D.

Cridberg Corporation's Selling and Administrative Expenses for Last Year Totaled