The following information relates to Layline Company: $\begin{array}{lr}
\text { Prepaid Insurance, December 31, } 2013 & \$ 302,000 \
\text { Prepaid Insurance, December 31, } 2014 & 280,000 \
\text { Insurance expense for 2014 } & 1,400,000
\end{array}$ Using the direct method of reporting cash flows from operating activities, what was the amount of cash paid for insurance premiums by Layline during 2014?
A) $1,378,000.
B) $1,422,000.
C) $1,680,000.
D) $1,422,000

Question

Quizplus · Accepted Answer

The direct method of reporting cash flows from operating activities requires that the cash paid for insurance premiums be reported as a separate line item. The amount of cash paid for insurance premiums by Layline during 2014 is calculated as follows:Insurance expense for 2014 $1,400,000Add: Prepaid Insurance, December 31, 2013 302,000Less: Prepaid Insurance, December 31, 2014 (280,000)Cash paid for insurance premiums $1,378,000

The Following Information Relates to Layline Company Using the Direct Method of Reporting Cash Flows from Operating