The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total
A) $46,000
B) $44,000
C) $50,000
D) $40,000

Question

Quizplus · Accepted Answer

The formula for calculating cash payments for merchandise using the direct method is: Cost of merchandise sold + Increase in inventory - Decrease in inventory + Decrease in accounts payable - Increase in accounts payable.

Plugging in the given numbers:

$45,000 + ($10,500 - $13,500) + ($7,000 - $5,000) = $45,000 - $3,000 + $2,000 = $44,000

Therefore, the correct answer is B) $44,000.

The Cost of Merchandise Sold During the Year Was $45,000