CFA Practice Question

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CFA Practice Question

Consider the following:
Total operating expenses: $95,000
Depreciation expense: $5,000
Amortization expense: $3,000
Beginning prepaids: $15,000
Ending prepaids: $11,000
Beginning accrued liabilities: $6,000
Ending accrued liabilities: $1,000

What was the total of cash payments for expenses?
A. $96,000
B. $94,000
C. $88,000
Explanation: Cash payments for expenses = Expenses - Noncash expenses - Decrease in Prepaids + Decrease in Accrued Liabilities. $95,000 - $8,000 - $4,000 + $5,000 = $88,000

User Contributed Comments 8

User Comment
Pooh Note: subtract noncash expenses (i.e., depreciation & amortization) from cash payments for expenses.
murli Total operating expenses inccludes non-cash operating exp.
haarlemmer I was not aware that non cash outflows should be included in total operating expenses
achu Note the change in Prepaids SIGN.
endurance pretty straight forward actually:

expenses = cash used
declining prepaids = less cash
change i accrued liabilities = more cash

then just work through the lines....
Tommy Thanks Endurance.
alles Just a correction:
declining prepaids is a source of cash (more cash), and that's why it's subtracted from expenses.
declining accrued liabilities it's use of cash (less cash), and that's why it's added to expenses.
depreciation and amortization are added back to expenses.
endurance's calculation returns -102, and not 88.
the correct calculation is:
CJPerugini @Alles - Prepaids are not a source of periodic cash flows. They are however, classified as a non-cash operating expense that must be deducted similarly to depreciation and amortization.
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