In a company that uses the direct method to prepare the statement of cash flows, the amount of cash it pays in interest expense is computed as
A)the change in interest payable plus interest expense.
B)the change in interest payable minus interest expense.
C)the ending interest payable balance plus interest expense.
D)the ending interest payable balance minus interest expense.

Question

Quizplus · Accepted Answer

According to the direct method, interest expense is calculated as the change in interest payable plus interest expense. This is because the change in interest payable represents the amount of interest that was accrued during the period but was not paid, and adding it to the actual interest expense will give the total amount of cash paid for interest.

In a Company That Uses the Direct Method to Prepare