Maddox Industries reported an increase in inventories of $20,000 and a decrease in accounts payable of $10,000.Cost of goods sold totaled $120,000.Monroe uses the direct method to determine the net cash provided by operating activities on the statement of cash flows.What is the cost of goods sold adjusted to a cash basis?
A)$90,000
B)$110,000
C)$120,000
D)$150,000

Question

Quizplus · Accepted Answer

The cost of goods sold adjusted to a cash basis is calculated by starting with the cost of goods sold and adjusting it for changes in inventory and accounts payable. Here, the cost of goods sold is $120,000. The increase in inventories ($20,000) means that not all goods purchased were sold, so we subtract this from the cost of goods sold. The decrease in accounts payable ($10,000) means that cash payments were higher than the expenses recognized, so we add this to the cost of goods sold. Therefore, the adjusted cost of goods sold is $120,000 - $20,000 + $10,000 = $110,000.

Maddox Industries Reported an Increase in Inventories of $20,000 and a Decrease