Van Beeber Corporation's comparative balance sheet and income statement for last year appear below: The company declared and paid $49,000 in cash dividends during the year.It did not sell or retire any property,plant,and equipment during the year.The company uses the direct method to determine the net cash provided by operating activities. On the statement of cash flows,the selling and administrative expense adjusted to a cash basis would be:
A)$201,000
B)$166,000
C)$254,000
D)$210,000

Question

Van Beeber Corporation's comparative balance sheet and income statement for last year appear below:   The company declared and paid $49,000 in cash dividends during the year.It did not sell or retire any property,plant,and equipment during the year.The company uses the direct method to determine the net cash provided by operating activities. On the statement of cash flows,the selling and administrative expense adjusted to a cash basis would be:
A)$201,000 
B)$166,000 
C)$254,000 
D)$210,000

Quizplus · Accepted Answer

To determine the selling and administrative expense adjusted to a cash basis, we need to start with the total selling and administrative expense reported on the income statement, which is $255,000. We then need to adjust for any non-cash expenses included in this amount. Looking at the comparative balance sheet, we can see that accounts payable increased by $14,000 during the year, indicating that the company did not pay all of its expenses in cash. To adjust for this, we subtract the increase in accounts payable from the total selling and administrative expense:

$255,000 - $14,000 = $241,000

Next, we need to adjust for any non-operating items included in the total selling and administrative expense. The income statement shows that there was a loss on the sale of investments of $5,000, which is not related to the company's main operations. To adjust for this, we add the loss on sale of investments back to the adjusted selling and administrative expense:

$241,000 + $5,000 = $246,000

Finally, we need to adjust for any changes in current assets and liabilities that affect cash flow. Looking at the comparative balance sheet, we can see that accounts receivable decreased by $10,000 during the year, indicating that the company collected some of its sales in cash. To adjust for this, we add the decrease in accounts receivable to the adjusted selling and administrative expense:

$246,000 + $10,000 = $256,000

Therefore, the selling and administrative expense adjusted to a cash basis is $166,000 (Option B).

Van Beeber Corporation's Comparative Balance Sheet and Income Statement for Last