Marsh Company has other operating expenses of $240,000. There has been an increase in prepaid expenses of $16,000 during the year, and accrued liabilities are $24,000 lower than in the prior period. Using the direct method of reporting cash flows from operating activities, what were Marsh's cash payments for operating expenses?
A) $228,000
B) $232,000
C) $200,000
D) $280,000

Question

Quizplus · Accepted Answer

To calculate cash payments for operating expenses using the direct method, adjust the operating expenses for changes in prepaid expenses and accrued liabilities. Increase in prepaid expenses ($16,000) means cash was paid, and a decrease in accrued liabilities ($24,000) means less cash was paid. Therefore, cash payments = $240,000 + $16,000 + $24,000 = $280,000.

Marsh Company Has Other Operating Expenses of $240,000