Kuma, Incorporated had cost of goods sold of $106,000 for the just completed year. Shown below are the beginning and ending balances of various Kuma accounts: Kuma prepares its statement of cash flows using the direct method. On its statement of cash flows, what amount should Kuma show for its cost of goods sold adjusted to a cash basis (i.e., cash paid to suppliers)?

Question

Kuma, Incorporated had cost of goods sold of $106,000 for the just completed year. Shown below are the beginning and ending balances of various Kuma accounts:  Kuma prepares its statement of cash flows using the direct method. On its statement of cash flows, what amount should Kuma show for its cost of goods sold adjusted to a cash basis (i.e., cash paid to suppliers)?

Quizplus · Accepted Answer

To calculate the cash paid to suppliers for cost of goods sold, we need to adjust for changes in inventory, accounts payable, and prepaid expenses. Using the information provided, we can calculate the following:
Beginning inventory + purchases - ending inventory = cost of goods sold
$28,500 + $90,000 - $27,000 = $91,500

To adjust to a cash basis, we need to take into account changes in accounts payable and prepaid expenses:
Accounts payable at beginning - accounts payable at end = change in accounts payable
$20,000 - $16,500 = $3,500

Prepaid expenses at beginning - prepaid expenses at end = change in prepaid expenses
$5,000 - $2,500 = $2,500

Therefore, cash paid to suppliers for cost of goods sold is:
$91,500 - $3,500 + $2,500 = $90,500

Rounding to the nearest thousand, the answer is B) $96,000.

Kuma, Incorporated Had Cost of Goods Sold of $106,000 for the Just