Cost of goods sold for the year was $700,000.Inventory was $80,000 at the beginning of the year and $35,000 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 of reporting cash payments for merchandise involves subtracting any increase in accounts payable from the cost of goods sold and adding any decrease in inventory. Therefore:
Cash payments for merchandise = cost of goods sold - decrease in inventory + increase in accounts payable
Decrease in inventory = $80,000 - $35,000 = $45,000
Increase in accounts payable = $0 (there were no changes)
Cost of goods sold = $700,000
Cash payments for merchandise = $700,000 - $45,000 + $0 = $655,000. Therefore, the correct answer is choice B.

Cost of Goods Sold for the Year Was $700,000