Cost of goods sold for the year was $850,000.Inventory was $60,000 at the beginning of the year and $90,000 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 (cost of goods sold) as the sum of purchases less the change in inventory.

Purchases = Cost of goods sold + Decrease in inventory
Purchases = $850,000 + ($60,000 - $90,000)
Purchases = $820,000

Cash payment for merchandise = Purchases + Increase in accounts payable
Cash payment for merchandise = $820,000 + $0 (no change in accounts payable)
Cash payment for merchandise = $820,000

Therefore, the correct answer is D) $880,000.

Cost of Goods Sold for the Year Was $850,000