Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2018 income statement, WME reported $440,000 for the cost of goods sold. WME paid inventory suppliers $380,000 in 2018, and its inventory balance decreased by $41,000 during the year. In its reconciliation schedule, WME should:
A) Show a $19,000 positive adjustment to net income under the indirect method for the increase in accounts payable.
B) Show a $19,000 positive adjustment to net income under the indirect method for the decrease in accounts payable.
C) Show a $19,000 negative adjustment to net income under the indirect method for the increase in accounts payable.
D) Show a $19,000 negative adjustment to net income under the indirect method for the decrease in accounts payable.

Question

Quizplus · Accepted Answer

Decrease in inventory balance by $41,000 indicates that purchases were less than cost of goods sold by $41,000, totaling $399,000. If cash paid to suppliers was $380,000, accounts payable increased by $19,000.

Each Year, White Mountain Enterprises (WME) Prepares a Reconciliation Schedule