Cost of merchandise sold for the year was $760,000. Inventories were $20,000 and $110,000 at the beginning and end of the year, respectively. There were no changes in accounts payable from the beginning to the end of the year. Cash payment for merchandise to be reported on the cash flow statement using the direct method is:
A) $760,000.
B) $850,000.
C) $870,000.
D) $780,000.

Question

Quizplus · Accepted Answer

To calculate the cash payment for merchandise using the direct method, we start with the cost of merchandise sold ($760,000), then adjust for the change in inventory. The inventory increased from $20,000 to $110,000, indicating that $90,000 more inventory was purchased than was sold. Therefore, the cash payment for merchandise is $760,000 + $90,000 = $850,000.

Cost of Merchandise Sold for the Year Was $760,000