Asked by Katherine Doughty on Jun 12, 2024
Verified
The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total
A) $46,000
B) $44,000
C) $50,000
D) $40,000
Merchandise Inventories
Goods, either manufactured or purchased, held for sale in the regular course of business.
Direct Method
A cash flow statement approach that itemizes actual cash flows from operating activities, rather than adjusting net income.
- Compute the net cash generated from operational activities through the application of the direct method.
Verified Answer
DA
Dequez AndrewsJun 12, 2024
Final Answer :
B
Explanation :
The formula for calculating cash payments for merchandise using the direct method is: Cost of merchandise sold + Increase in inventory - Decrease in inventory + Decrease in accounts payable - Increase in accounts payable.
Plugging in the given numbers:
$45,000 + ($10,500 - $13,500) + ($7,000 - $5,000) = $45,000 - $3,000 + $2,000 = $44,000
Therefore, the correct answer is B) $44,000.
Plugging in the given numbers:
$45,000 + ($10,500 - $13,500) + ($7,000 - $5,000) = $45,000 - $3,000 + $2,000 = $44,000
Therefore, the correct answer is B) $44,000.
Learning Objectives
- Compute the net cash generated from operational activities through the application of the direct method.
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