Wireless Technologies reports operating expenses of $2 million.Operating expenses include rent expense.Prepaid rent at the beginning and end of the year are $20,000 and $70,000,respectively.All other operating expenses were paid in cash as incurred.What is the amount of cash paid for operating expenses?
A)$2,000,000.
B)$2,070,000.
C)$1,950,000.
D)$2,050,000.

Question

Quizplus · Accepted Answer

Operating expenses reported in the income statement are the expenses incurred during the period. However, some of these expenses may have been paid for in advance or not yet paid for at the end of the period. To determine the amount of cash paid for operating expenses, we need to adjust for these changes in prepaid expenses.

The prepaid rent at the beginning of the year is not an operating expense for the current period, so we need to add it back. The prepaid rent at the end of the year is for future periods and therefore needs to be subtracted.

Adjusted operating expenses = operating expenses + prepaid rent at the beginning of the year - prepaid rent at the end of the year
Adjusted operating expenses = $2,000,000 + $20,000 - $70,000 
Adjusted operating expenses = $1,950,000

Therefore, the amount of cash paid for operating expenses is $1,950,000. The correct answer is D.

Wireless Technologies Reports Operating Expenses of $2 Million