Asked by Kamalpreet Singh on May 26, 2024
Verified
Cost of merchandise sold for the year was $760,000. Inventories were $20,000 and $110,000 at the beginning and end of the year, respectively. There were no changes in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is:
A) $760,000.
B) $850,000.
C) $870,000.
D) $780,000.
Cost of Merchandise Sold
The total cost of goods that have been sold during a specific period, including purchase price, transportation, and handling charges, less any discounts or allowances.
Cash Payment
The act of settling a debt or paying for goods or services with cash or equivalent instruments, such as checks.
- Analysis and calculation of cash inflows and outflows using the direct method across multiple accounts such as operating expenses, salaries, merchandise inventory, and insurance.
- Study on the impact of alterations in working capital components including Prepaid Expenses, Salaries Payable, Accounts Receivable, Inventories, and Accounts Payable on liquidity movements.
Verified Answer
MG
Mansimran GirgalaMay 29, 2024
Final Answer :
B
Explanation :
To calculate the cash payment for merchandise using the direct method, we start with the cost of merchandise sold ($760,000), then adjust for the change in inventory. The inventory increased from $20,000 to $110,000, indicating that $90,000 more inventory was purchased than was sold. Therefore, the cash payment for merchandise is $760,000 + $90,000 = $850,000.
Learning Objectives
- Analysis and calculation of cash inflows and outflows using the direct method across multiple accounts such as operating expenses, salaries, merchandise inventory, and insurance.
- Study on the impact of alterations in working capital components including Prepaid Expenses, Salaries Payable, Accounts Receivable, Inventories, and Accounts Payable on liquidity movements.
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