Asked by Jennifer Zuniga on May 11, 2024
Verified
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
Administrative Expenses
Costs related to the general operation of a company, such as salaries of executives and office supplies.
Direct Method
A method of allocating service department costs directly to producing departments without any intermediate allocation steps.
Accrued Liabilities
Accrued liabilities are financial obligations that a company has incurred but has not yet paid or recorded in its financial statements.
- Establish the sales, cost of goods sold, and expenses in cash basis terms, utilizing the given accrual basis financial insights.
Verified Answer
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.
Learning Objectives
- Establish the sales, cost of goods sold, and expenses in cash basis terms, utilizing the given accrual basis financial insights.
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