Cridberg Corporation's selling and administrative expenses for last year totaled $296,000. During the year the company's prepaid expense account balance increased by $36,000 and accrued liabilities decreased by $30,000. Depreciation for the year was $61,000. 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:

Question

Quizplus · Accepted Answer

Under the direct method, selling and administrative expenses are adjusted to a cash basis by considering changes in prepaid expenses and accrued liabilities.

Adjusted expenses = selling and administrative expenses + increase in prepaid expenses - decrease in accrued liabilities

= $296,000 + $36,000 - $30,000

= $302,000

However, the question asks for expenses adjusted to a cash basis, which means depreciation needs to be deducted as it is a non-cash expense.

Adjusted expenses (cash basis) = adjusted expenses - depreciation

= $302,000 - $61,000

= $241,000

Therefore, selling and administrative expenses adjusted to a cash basis would be $301,000 ($241,000 + $60,000 decrease in prepaid expenses).

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