Douglas Companys net income for last year was $800,000. During the year, accrued liabilities increased by $45,000, and prepaid expenses increased by $36,000. Depreciation expense for the year was $30,000. Based on this information, operating expenses adjusted to a cash basis under the direct method on the statement of cash flows would be:

$761,000.

$703,000.

$672,000.

$518,000.