Gladiator Inc.uses the direct method to prepare its statement of cash flows.Refer to the following information reported for the year 2014 and determine the amount of cash paid for merchandise inventory. Cost of Goods Sold,$130,000
Inventory,beginning balance,$25,000
Inventory,ending balance,$65,000
Accounts Payable,beginning balance,$7,500
Accounts Payable,ending balance,$4,900

Question

Quizplus · Accepted Answer

The amount of cash paid for merchandise inventory can be calculated using the following formula:Cash paid for merchandise inventory = Beginning inventory + Purchases - Ending inventoryPurchases can be calculated using the following formula:Purchases = Cost of goods sold + Ending inventory - Beginning inventorySubstituting the given values into the formula, we get:Purchases = $130,000 + $65,000 - $25,000 = $170,000Therefore, the amount of cash paid for merchandise inventory is $170,000.