Joined: 02 Feb 2010
Online Status: Offline Posts: 125
Posted: 05 May 2010 at 13:08 | IP Logged
In its 1996 income statement, Kilm Co. reported cost of goods sold of $450,000. Changes occurred in several balance sheet accounts as follows:
Inventory $160,000 decrease
Accounts payable-suppliers 40,000 decrease
What amount should Kilm report as cash paid to suppliers in its 1996 cash flow statement, prepared under the direct method?
a. $250,000
b. $330,000
c. $570,000
d. $650,000
ans is b .can somebody explain using T aa/c
2)
The Jones Company reports cost of goods sold for the current year of $290,000. However, the company’s Inventory balance rose during the period by $30,000 while its liability for merchandise purchases dropped by $17,000. On its statement of cash flows, the company is using the direct method of reporting its cash flows from operating activities. What amount will the company report as the cash paid for inventory purchases?
Joined: 10 Jun 2009
Online Status: Offline Posts: 159
Posted: 05 May 2010 at 18:50 | IP Logged
When come to this kind of questions, I always go one item
by one item.
Accrual COGS $450,000
Since inventory decrease $160,000, the COGS already
include that inventory (No cash effect), then when
calculate the cash outflow, we need to back out these
inventory decrease.
Accounts payable decrease by $40,000, the only reason the
AP decreased is because more cash out to pay it down.
Then $40,000 more cash outflow.
From COGS $ 450,000
Less: decrease in inventory (160,000)
Add: decrease in A/P &nb sp; 40,000
Cash flow statement &nb sp; 330,000
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Topic: Cash flow
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