Young & Jamison’s modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000.  At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000.  If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses?
　　A. $175,000
　　B. $135,000
　　C. $165,000
　　D. $125,000
　　Answer:C
　　C is corrent because it subtracts the yearly change in prepaid expenses from and adds the yearly change in accrued liabilities to the cash operating expenses to arrive at accrual-basis operating expenses. The cash paid for operating expenses is $150,000. Because prepaid expenses increased by $5,000 (end of year of $15,000 less beginning of year $10,000), this amount is not included in accrual-basis expenses. The accrued liabilities increased from $5,000 at beginning of the year to $25,000 at the end of the year, indicating that an additional $20,000 of liabilities were incurred and not yet paid. To convert to accrual-basis operating expenses, the cash paid of $150,000 is adjusted by subtracting the increase in the prepaid expense account, and adding the increase in accrued liabilities. ($150,000 – 5,000 + 20,000 = $165,000).