Question

Btn incorporated reports operating expenses of $27,200. its comparative balance sheet shows that accrued liabilities decreased $6,200 and prepaid expenses increased $2,200. compute cash used in operating activities using the direct method.

Answer 1

To compute the cash used in operating activities for Btn incorporated using the direct method, start with the reported operating expenses of $27,200 and adjust for the decrease in accrued liabilities and the increase in prepaid expenses by adding $6,200 and $2,200, respectively. The total cash used in operating activities is $35,600.

Step-by-step explanation:

The question requires calculating the cash used in operating activities for Btn incorporated using the direct method. To determine this, we must consider changes in operating working capital items from the balance sheet, in addition to the reported operating expenses. With operating expenses reported at $27,200, an observed decrease in accrued liabilities by $6,200, and an increase in prepaid expenses by $2,200, the adjustments to the operating expenses must be made to reflect the cash actually paid.

Here's the computation:

• Cash paid for operating expenses: $27,200 (reported operating expenses)
• Adjustment for decrease in accrued liabilities: +$6,200 (since a decrease means less cash was paid out than expenses reported)
• Adjustment for increase in prepaid expenses: +$2,200 (since an increase means cash was paid out that was not yet expensed)

Therefore, the cash used in operating activities is calculated as the sum of these amounts: Cash used in operating activities = $27,200 + $6,200 + $2,200 = $35,600\