The following information was taken from the 2015 financial statements of Jenny Gardner Corporation: $\begin{array}{lr}
\text { Inventory, January } 1,2015 & \$ 90,000 \
\text { Inventory, December 31,2015 } & 120,000 \
\text { Accounts payable, January } 1,2015 & 75,000\
\text { Accounts payable, December 31, } 2015 & 120,000 \
\text { Sales revenue } & 600,000 \
\text { Cost of qoods sold } & 400,000
\end{array}$ If the direct method is used in the 2015 statement of cash flows, what amount should Jenny Gardner report as cash payments to suppliers?
A) $395,000
B) $415,000
C) $445,000
D) $475,000

Question

Quizplus · Accepted Answer

The increase in accounts payable from January 1, 2015, to December 31, 2015, is $45,000 ($120,000 - $75,000). This means that Jenny Gardner Corporation paid $45,000 less to suppliers in 2015 than it purchased from them. Therefore, the cash payments to suppliers using the direct method would be $400,000 (cost of goods sold) - $45,000 (increase in accounts payable) = $395,000.

The Following Information Was Taken from the 2015 Financial Statements