The changes in Tench Company's balance sheet account balances for last year appear below: The company's income statement for the year appears below: The company declared and paid $70,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.
-On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
A) $440,000
B) $365,000
C) $300,000
D) $370,000

Question

The changes in Tench Company's balance sheet account balances for last year appear below:  The company's income statement for the year appears below:  The company declared and paid $70,000 in cash dividends during the year. The company uses the direct method to determine the net cash provided by operating activities.
-On the statement of cash flows, the operating expenses adjusted to a cash basis would be:
A) $440,000 
B) $365,000 
C) $300,000 
D) $370,000

Quizplus · Accepted Answer

In the income statement, the operating expenses are listed as $440,000, but there are additional adjustments that need to be made to convert this amount to a cash basis. The changes in the balance sheet accounts provide the necessary information to make these adjustments. Starting with the operating expenses of $440,000, we can make the following adjustments:

- Add the decrease in accounts payable of $35,000, since this represents expenses that were incurred but not yet paid in cash: $440,000 + $35,000 = $475,000
- Subtract the decrease in prepaid expenses of $5,000, since this represents cash that was paid for expenses in the current year but recognized as an expense in a later period: $475,000 - $5,000 = $470,000
- Subtract the increase in accrued expenses payable of $170,000, since this represents expenses that were recognized in the current year but not yet paid in cash: $470,000 - $170,000 = $300,000

Therefore, the operating expenses adjusted to a cash basis would be $300,000.

The Changes in Tench Company's Balance Sheet Account Balances for Last