The following items were reported on the balance sheets and income statement for Centerton Inc., a service company: $\begin{array}{lr}
\text { Accounts payable, December 31, 2016 } & \$ 64,000 \
\text { Accounts payable, December 31, 2017 } & 48,000 \
\text { Operating expenses-2017 } & 170,000
\end{array}$ What amount would be reported in the operating activities section of the statement of cash flows for payments for operating expenses under the direct method?
A) $186,000
B) $154,000
C) $180,000
D) $170,000

Question

Quizplus · Accepted Answer

To calculate the payments for operating expenses under the direct method, you start with the operating expenses for the year, which is $170,000. Then, you adjust for the change in accounts payable to reflect the actual cash paid. The accounts payable decreased from $64,000 to $48,000, indicating a payment of $16,000 more than the expenses recognized. Therefore, the total payments for operating expenses are $170,000 + $16,000 = $186,000.

The Following Items Were Reported on the Balance Sheets and Income