Cost of goods sold for the year was $840,000. Inventory was $64,000 at the beginning of the year and $89,000 at the end of the year. There were no changes in the amount in account payable for the year. Cash payment for merchandise to be reported under the direct method is:

Question

Quizplus · Accepted Answer

The direct method reports cash payments for merchandise purchases during the year. To calculate this, we need to adjust the cost of goods sold by changes in inventory.

Cost of goods sold = $840,000

Change in inventory = $89,000 - $64,000 = $25,000 increase

Cash payments for merchandise = Cost of goods sold + increase in inventory = $840,000 + $25,000 = $865,000

Therefore, the correct choice is D ($865,000).

Cost of Goods Sold for the Year Was $840,000