The cost of merchandise sold during the year was $50,000. Merchandise inventories were $12,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $6,000 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) $49,000
B) $47,000
C) $51,000
D) $53,000

Question

Quizplus · Accepted Answer

The direct method of reporting cash flows from operating activities requires that cash payments for merchandise be calculated as the cost of merchandise sold plus the decrease in merchandise inventories minus the increase in accounts payable. In this case, the cost of merchandise sold was $50,000, the decrease in merchandise inventories was $12,500 - $10,500 = $2,000, and the increase in accounts payable was $5,000 - $6,000 = $1,000. Therefore, cash payments for merchandise total $50,000 + $2,000 - $1,000 = $49,000.

The Cost of Merchandise Sold During the Year Was $50,000