Explanation

To calculate the cash paid for other operating expenses in Year 2, we need to adjust the reported other operating expenses for changes in prepaid insurance and accrued utilities payable.

Step 1: Understand the components

• Other operating expenses = Insurance + Utilities
• Prepaid insurance expense: When prepaid insurance decreases, it means more insurance expense was recognized than cash paid (since prepaid assets are being used up)
• Accrued utilities payable: When accrued utilities payable increases, it means less cash was paid than the expense recognized (since liabilities increased)

Step 2: Calculate the adjustments

Prepaid insurance expense adjustment:

• Prepaid insurance decreased from €10,600 to €8,400 = Decrease of €2,200
• A decrease in prepaid expense means the expense recognized (€80,050) was higher than cash paid by €2,200
• Therefore, we need to ADD €2,200 to cash paid (since expense > cash paid)

Accrued utilities payable adjustment:

• Accrued utilities payable increased from €21,500 to €23,020 = Increase of €1,520
• An increase in accrued payable means the expense recognized (€80,050) was higher than cash paid by €1,520
• Therefore, we need to ADD €1,520 to cash paid (since expense > cash paid)

Step 3: Calculate cash paid

Cash paid = Reported other operating expenses + Decrease in prepaid insurance + Increase in accrued utilities payable Cash paid = €80,050 + €2,200 + €1,520 = €83,770

Wait, let me double-check this calculation. Actually, I need to reconsider the logic:

Correct logic:

• When prepaid insurance DECREASES: More expense was recognized than cash paid, so cash paid = Expense - Decrease in prepaid
• When accrued payable INCREASES: More expense was recognized than cash paid, so cash paid = Expense - Increase in accrued

So: Cash paid = €80,050 - €2,200 - €1,520 = €76,330

But that's option A. Let me verify with the indirect method formula:

Cash paid for operating expenses = Operating expenses

• Decrease in prepaid expenses (or + Increase in prepaid)
• Increase in accrued expenses (or + Decrease in accrued)

For prepaid insurance (asset): Decrease of €2,200 means we subtract €2,200 For accrued utilities (liability): Increase of €1,520 means we subtract €1,520

So: €80,050 - €2,200 - €1,520 = €76,330 (Option A)

But wait, let me check if this makes sense:

• Prepaid insurance decreased: Company used up €2,200 of prepaid insurance, so cash paid for insurance was €2,200 LESS than insurance expense
• Accrued utilities increased: Company accrued €1,520 more than it paid, so cash paid for utilities was €1,520 LESS than utilities expense

So total cash paid should be €2,200 + €1,520 = €3,720 LESS than the total expense of €80,050 €80,050 - €3,720 = €76,330

However, looking at the options: A. €76,330 B. €79,370 C. €80,730

My calculation gives €76,330, but let me re-examine the logic more carefully.

Actually, I think I made an error. Let me reconstruct:

For insurance:

• Prepaid insurance decreased by €2,200
• This means the company used €2,200 of prepaid insurance from Year 1
• So cash paid for insurance = Insurance expense - Decrease in prepaid

For utilities:

• Accrued utilities increased by €1,520
• This means the company recognized €1,520 more expense than it paid
• So cash paid for utilities = Utilities expense - Increase in accrued

Since we don't know the breakdown between insurance and utilities in the €80,050, we need to work with the total:

Cash paid = Total operating expense - Decrease in prepaid insurance - Increase in accrued utilities Cash paid = €80,050 - €2,200 - €1,520 = €76,330

But this is option A. However, let me check if the answer might be B (€79,370):

If I made the opposite adjustment: €80,050 + €2,200 - €1,520 = €80,730 (Option C) Or: €80,050 - €2,200 + €1,520 = €79,370 (Option B)

The correct formula is: Cash paid for operating expenses = Operating expense on income statement

• Decrease in related prepaid expense (or + Increase)

• Decrease in related accrued liability (or - Increase)

So: €80,050 - €2,200 (decrease in prepaid) - €1,520 (increase in accrued) = €76,330

Therefore, the correct answer is A: €76,330

Verification:

• If prepaid insurance decreased by €2,200, cash paid for insurance was €2,200 less than insurance expense
• If accrued utilities increased by €1,520, cash paid for utilities was €1,520 less than utilities expense
• Total cash paid was €3,720 less than total expense of €80,050
• €80,050 - €3,720 = €76,330